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March Market Commentary: Tariffs, Inflation, and Taxes – Where’s the Balance? Thumbnail

March Market Commentary: Tariffs, Inflation, and Taxes – Where’s the Balance?

Markets & Economy

February Recap and March Outlook

The new administration’s push to "reindustrialize America" is moving from campaign rhetoric to policy reality. Recent tariff announcements – even those softened or rescinded – make it clear that protectionism is going to be here for a while. Meanwhile, the Department of Government Efficiency (DOGE) is trimming the federal workforce, raising questions about economic stability. With headlines fueling fears of both slowing consumer spending and a resurgence in inflation, the markets rode a wave of volatility through February before closing out with only moderate losses.

The Federal Reserve is walking a tightrope, balancing its ongoing battle against inflation with emerging recession signals. A weakening labor market complicates the equation, making rate-cut decisions even trickier.

Let's dig into the data:

  • Inflation creeps up. The Consumer Price Index (CPI) rose 3.0% year-over-year in January, with a monthly increase of 0.5%, outpacing expectations of 0.3%. That’s the biggest jump since August 2023.
  • Job growth slows. February’s non-farm payrolls report showed 151,000 new jobs—well below the expected 170,000. The unemployment rate edged up to 4.1%.
  • Consumers are nervous. The Conference Board Consumer Confidence Index® dropped 7.0 points in February, marking three straight months of declining sentiment.
  • Unemployment concerns rise. The New York Fed’s Survey of Consumer Expectations showed a sharp 5.4% increase in the probability of higher unemployment within a year.

What Does It All Mean?

The administration is trying to balance economic risks – soaring consumer pessimism, inflation worries, and tariff-driven price shocks – while pushing a pro-industry agenda and tax cuts. Government layoffs haven’t hit the broader labor market yet, but they could create ripple effects, especially if public perception sours.

The latest labor market report released on March 7th suggests employment remains strong but is showing some cracks. Meanwhile, economic growth forecasts are all over the place. The Atlanta Fed’s GDPNow model predicts -2.4% GDP growth in Q1 – a stark warning of potential contraction. The New York Fed’s Nowcast, on the other hand, shows 2.67% GDP growth, suggesting a much healthier economy. While the Atlanta Fed is typically regarded as the most dependable GDP indicator, these data points could quickly shift.

The big question getting a lot of buzz right now is are we headed for a "Trumpcession," or will these signals prove to be short-term noise? More worrisome than a full-blown recession is stagflation – when economic growth stalls while inflation keeps rising. Tariffs act as a supply shock, reducing growth while driving up prices. The administration insists this is just a "transition period," but if inflation keeps climbing, the Fed may be boxed in, unable to cut rates to keep the economy moving.

Chart of the Month: A Slight Uptick in Unemployment as Non-Farm Payrolls Miss

February Equity Market Highlights

  • S&P 500: -1.42%
  • Dow Jones Industrial Average: -1.58%
  • S&P MidCap 400: -4.44%
  • S&P SmallCap 600: -5.84%

(Source: S&P Global. Data as of February 28, 2025.)

There was one bright spot: Q4 2024 earnings. The S&P 500 posted stronger than expected results, setting a new quarterly record. As of February’s end, 74.2% of companies beat expectations – a historically high rate. That said, sector performance was uneven. Consumer Staples led with a 5.59% return, while Consumer Discretionary got crushed, down 9.94%, likely reflecting weakened consumer confidence.

February Bond Market Highlights

  • 10-year U.S. Treasury yield: 4.21% (down from 4.55%)
  • 30-year U.S. Treasury yield: 4.49% (up from 4.80%)
  • Bloomberg U.S. Aggregate Bond Index: -1.41%
  • Bloomberg Municipal Bond Index: +0.13%

The Takeaway

With uncertainty rising, the market is reacting as much to headlines as to hard data. How can investors navigate the volatility?

  1. Check your risk exposure. With last year’s gains, you might not have wanted to rebalance, but now’s the time to ensure your portfolio still matches your goals.
  2. Assess your cash needs. If you have big expenses coming up, consider holding more cash to avoid selling investments in a downturn.
  3. Consider dollar-cost averaging. Investing gradually can help smooth out market swings, especially if you're deploying a tax refund or bonus.

A well-structured financial plan helps you weather market fluctuations while staying on track for your long-term goals. As always, we're here to help you make sense of the chaos and find opportunities to invest with impact.

This work is powered by Advisor I/O under the Terms of Service and may be a derivative of the original. The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.