Weekly Market Update: March 17, 2025

The nation added 151,000 jobs in February. That figure was modestly below the consensus forecast of 160,000, but relatively in line with the 12-month average of 168,000. It was accompanied by a slight uptick in the unemployment rate, to 4.1%, last month. In all, the report suggested that the labor market is still quite balanced. 

The February Consumer Price Index (CPI) report showed a modest easing in the pace of price growth. Specifically, both the CPI and the core CPI, which excludes food and energy, increased 0.2% on a month-to-month basis. From a one-year perspective, the CPI and core CPI rose 2.8% and 3.1%, respectively. This more-benign inflation data, along with the February labor report, kept talks of stagflation (a combination of slow growth and elevated inflation, accompanied by high unemployment) at bay for the time being. 

These reports will likely not change the Federal Reserve’s stance on monetary policy. The central bank is expected to hold the federal funds rate steady in the near term, as it assesses the strength of the U.S. economy within the backdrop of heightened fiscal policy uncertainty. However, with some economic data of late showing signs of fatigue in the consumer sector, as tariffs are implemented and credit card debt balances remain elevated, we now think the Fed will cut the benchmark interest rate at least a few times this year. The lead bank does not want to put too much pressure on the consumer sector and risk pushing the economy into recession. 

So why is the equity market worried? There are concerns that the uncertain fiscal policies coming out of the White House will be a near-term burden for the U.S. consumer sector. This, in time, could potentially hurt corporate profit growth. According to FactSet Research, more than half of the S&P 500 companies talked about tariffs on their latest earnings conference calls, the highest rate in over a decade. 

Conclusion: Stock market volatility has spiked on fiscal policy concerns. Given this backdrop, we recommend that investors maintain a diversified portfolio of high- quality companies that have a history of generating steady earnings and cash flow growth, along with a sizable position in cash-equivalent securities. 

Source: ValueLine.com