Financial Market Roundup
Produced by Fifth Third's Investment Management Group
In the following piece, Fifth Third's Investment Management Group recaps the market and how it reacted to various events in the month of March 2025.
GLOBAL
TRENDS
After restrictive monetary policies helped curtail persistent inflation, most global economies have begun to lower interest rates to help foster growth and support global labor markets. Short-term interest rates from most of the world’s largest central banks are still elevated relative to the last decade, which adds pressure to global financial systems.
Offsetting these easier global financial conditions is a sharp increase in global trade policy uncertainty.
While the war in Ukraine continues, after over 15 months of conflict in the Middle East, a ceasefire was signed on Jan. 19 between Hamas and Israel. Aside from the human tragedy that is always associated with war, these conflicts have also added to risks and volatility for financial markets.
Taken together, recent global and economic actions have kept investors on edge. Despite these concerns, global economic growth remains resilient, driven by consumer spending in most developed nations. We expect this to continue in 2025, although likely at a slower rate than historical norms.
CENTRAL BANK
POLICIES
The Federal Open Market Committee last met on March 19 and held interest rates steady, keeping their target range for the federal funds rate at 4.25%-4.50%. What did change was their plan to slow down the pace of quantitative tightening, or balance sheet runoff. Investors also took note of a change in tone in the formal statement and subsequent press conference due to increased uncertainty.
Federal Reserve Chair Jerome Powell stated in his press conference that “the new administration is in the process
of implementing significant policy changes” while noting that “uncertainty around the changes and their effects on economic outlook is high.” The committee meets next on May 7, and markets are not expecting any changes to the target interest rate. Looking out over all of 2025, as of the end of March, markets expect three 25-basis-point interest rate cuts as implied by fed funds futures.
The European Central Bank last met on March 6 and lowered their target interest rate by 25 basis points. In a prepared statement, it was noted that future decisions “will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.” As of the end of March, market participants are expecting another 25-basis-point cut from the ECB when they meet this month.
EQUITY
PERFORMANCE
Domestic equities were down in March, with smaller companies selling off more than their larger counterparts, as noted by the Russell 2500 Index underperforming the S&P 500. International equities were mixed in March but have bested domestic equities for the last three months. Focusing on the S&P 500, two sectors posted gains in March, with nine sectors posting losses.
Energy stocks led the way, returning 3.9% over March.
Over the first quarter of 2025, earnings growth has been very strong; however, prospective earnings estimates from Wall Street analysts have moderated, with over 60% of companies in the S&P 500 having lowered their fiscal year 2025 earnings estimates. When looking at stock performance, we see similar results, with over 55% of stocks in the S&P 500 retreating over the first quarter of 2025.
Focusing on performance, the S&P 500 fell by 5.6% in March. The blue-chip Dow Jones Industrial Average dropped by 4.1% over the month. The tech-heavy Nasdaq composite plummeted by 8.1%. International stocks posted mixed results, with the MSCI Emerging Market Index posting gains of 0.6% in March. The MSCI EAFE Index of developed international equities fell by 0.2% over the last month. Finally, the MSCI All Country World Index of developing and developed market stocks dropped by 3.9% during March.
INTEREST RATES
AND GROWTH
On March 27, U.S. GDP in the fourth quarter of 2024 was revised higher to 2.4% but below the 3.1% growth posted in the third quarter of 2024. Despite the disappointing figure, the report continued to highlight a strong and resilient U.S. consumer, with personal consumption accelerating to the highest levels since early 2023. Offsetting this strength were pullbacks in exports, private investment and government expenditure.
At the March FOMC meeting, the Fed released their latest summary of economic projections, which details the central bank’s outlook on a variety of prospective economic measures. Specifically, investors digested lower expected GDP growth, higher unemployment and higher core inflation forecasts for 2025.
During the month of March, the U.S. Treasury yield curve moved lower in a net-steepening shape, with shorter yields falling while longer yields held flat or glided higher over the month. Specifically, the 2-year U.S. Treasury yield fell by 11 basis points and ended the month at 3.87%. The 10-year U.S. Treasury yield was unchanged at 4.21%. In addition to lower Treasury yields, credit spreads, or the premium investors require for credit exposures, moved higher for both investment-grade and high-yield credit bonds over the last month.
Mortgage rates moved lower in March as Freddie Mac’s Primary Mortgage Market Survey showed the 30-year fixed-rate fell to 6.65% on March 27, down 12 basis points from Feb. 27.
POLITICAL AND
REGULATORY TRENDS
President Donald Trump has been very busy in his second term, with over 100 executive orders signed by the end of March. Getting most of the attention are the trade policies and goals, with a myriad of tariffs set to be enacted on April 2.
INVESTMENT
TRENDS
Another strong earnings season for U.S. equities was offset by trade uncertainty, resulting in negative returns for domestic equity investors over the last month and first quarter of 2025. Headline inflation has moved lower over the last year, but progress appears to have stalled with February’s consumer price index moving up to 2.8%.
Core prices, or CPI excluding food and energy, also continue to be above the U.S. central bank’s 2.0% target, with the most recent reading indicating core prices rising at 3.1% over the last year. The U.S. GDP report for the fourth quarter of 2024 showed a resilient and strong consumer pushing the economy forward at 2.4%. Finally, the Fed’s latest summary of economic projections detailed an expected 2025 year-end GDP of 1.7%, with inflation measures above the central bank’s target of 2.0%.
Global trade uncertainty, cooling-but-persistent inflation domestically and abroad, and geopolitical tensions continue to weigh on investor sentiment. On balance, the headwinds and tailwinds currently at play suggest there is a potential path for global economic growth, albeit at a slower pace than initially expected.
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