Weekly Market Update 3-24-25
Powell uses "transitory" in a sentence again. Be afraid!
Last Week
Relative calm returned to both the equity and rates markets last week as both took some comfort from the Fed’s FOMC meeting which concluded on Wednesday. Why they took comfort I’m unsure of! Chairman Powell stated that inflation from tariffs would be “transitory,” a particular word that should have sent fear into the hearts of many since the last time he used transitory in a sentence was when the Fed fumbled and stumbled on “transitory inflation” back in late 2021. The Fed also released its every-other-meeting Summary of Economic Projections (SEP) where they downgraded their economic outlook, dropping 2025 GDP to 1.7% from 2.1% and upgraded their outlook on inflation, taking 2025 PCE to 2.7% from 2.5% at the December meeting. While granted that a growth rate of 1.7% and a PCE of 2.7% isn’t a welcome back to 1970s style stagflation, the trend seems to be heading in the direction of stagflation and for that, no central bank has ever had the correct medicine. At his post-statement press conference, Chairman Powell stated, “There can be situations where the Fed’s goals are in tension.” It seems like we are in that situation now. Powell also stated that he doesn’t, “See any reason to think this is a replay of the 1970s.” Let’s hope he’s right as at least in the 1970’s the music, movies and television were much better. Stagflation, minus the good 70’s stuff would be an unmitigated disaster! In light of all this, gold continues to soar, setting another new all-time high on Thursday. The other big news from the meeting was that the Fed slowed the pace of Quantitative Tightening, lowering the redemption cap on Treasuries from $25 billion a month to $5 billion. MBS stayed same at $35 billion a month.
· The S&P 500 rose 0.51% for the week. The average daily move was 0.62%.
· The NASDQ increased 0.17% for the week. The average daily move was 0.86%.
· The 2-year Treasury yield declined basis points, closing at 3.95% on Friday. Year over year high 5.04% and low 3.54%.
· The 10-year Treasury yield fell 6 basis points for the week, closing at 4.25% on Friday. Year over year high 4.79%, and low 3.62%
· The VIX Index declined 11.44%, closing at 19.28 on Friday. Year over year high 38.57 and low 11.86
· The MOVE Index decreased 6.49% for the week, closing at 94.54 on Friday. Year over year high 136.25 and low 82.49
· 5-year Investment Grade Corporates (as measured by Markit CDX) spreads widened 5 basis points for the week, closing at 60 bps on Friday. Year over year high 61 and low of 47.
· 5-year High Yield corporate debt (as measured by Markit CDX) spreads widened 3 basis points for the week, closing at 349 basis points on Friday. Year over year high 382, and low 289.
· The US Dollar Index (DXY) advanced 0.36% for the week, closing at 104.09 on Friday. Year over year high 109.65 and low 100.38
· WTI Crude rose 1.61% for the week, closing at 68.26 on Friday using the May WTI Futures contract. Year over year high of front contract 86.91, and low 65.75
· Gold, as measured by the April futures contract, increased 0.66% for the week, closing at 3,021 on Friday. On Thursday Gold set another new all-time high, 3,044. Year over year high of front contract 3,044, and low 2,176.
The Week Ahead
We come in this morning with Treasury yields up across the curve and stock futures up over 1%. There was talk over the weekend that President Trump’s tariffs will be watered down and more targeted but guessing what The White House will do with tariffs has proven the last month or so to be a fool’s errand. It is a busy week for economic data. We have housing market data on Tuesday along with Consumer Confidence. On Wednesday we get February Durable Goods and on Friday February PCE and finalized March University of Michigan sentiment numbers. On the supply front, Treasury will be auctioning $183 billion 2-year, 5-year and 7-year notes starting Tuesday.