The Setup & Where to Focus

Stocks sold off hard over the back half of last week. 

• The S&P 500 fell 1.5% over the five-day stretch—its fifth weekly loss in the last six weeks—and is likely to print its worst quarterly performance since September 2022.

• Tough tariff talk was backed up with actions last Wednesday evening when President Trump announced that duties would go into effect on vehicle and auto parts, renewing fears that a protracted trade war was already underway. 

Disappointing February PCE data released on Friday morning didn’t help the macro cause either. 

• Personal Spending numbers for last month fell shy of economists’ estimates, while the PCE Price Index—the Fed’s preferred inflation gauge—came in a touch hotter than expected. 

• The s-word of “stagflation” made the media rounds. 

• Then, after the market’s open on Friday, the revised University of Michigan Surveys of Consumers rattled stocks and apparently put a bid to bonds as consumer sentiment plunged to its weakest level since July of 2022—the month that a 40-year high in US inflation was confirmed.

The VIX settled the week above 21 ahead of Liberation Day this Wednesday, the 2-year Treasury yield sunk to its lowest weekly mark since last September, and the S&P 500 is back within spitting distance of correction territory off its 6147 all-time high notched on February 19.

After a notable bounce on Monday and Tuesday, the Magnificent Seven stocks once again rolled over from Wednesday through Friday. 

• NVIDIA was the biggest loser in the group, shedding almost 7% to close under $110.

• Alphabet (GOOG) fell 6%, with more measured declines among the other glamor stocks. 

• Indeed, US large-cap growth (IWF) was the worst-performing niche of the global stock market. US large-cap value (IWD) was down by less than 1% for the week and remains fractionally positive year to date. 

• Value equities are on pace for their best quarter versus growth since the final quarter of 2022. 

• Barring wild action on Monday, Energy (XLE) will take the top sector spot for Q1, while Information Technology (XLK) and Consumer Discretionary (XLY) are far and away the worst sectors in 2025, thanks to the Mag 7.

There was a clear defensive tone to aggregate price action last week. 

• Consumer Staples (XLP) rose 1.7%, and relative strength was apparent in Utilities (XLU) and Health Care (XLV) on Thursday and Friday. 

• WTI crude oil popped toward $70, helping Energy to post a 0.8% return. 

• Real Estate (XLRE) continues to generally do well in 2025—the property sector inched up by 0.5% last week. 

• Interestingly, and ahead of planned weekend protests, Tesla (TSLA) jumped 7% despite a down tape. The mid-week tariff announcement from the Oval Office was seen as somewhat beneficial for the American EV manufacturer. Shares of General Motors (GM) and Ford (F) were slammed, though, as they import significantly. 

Small caps fell alongside mid and large caps, though the Russell 2000 ETF’s (IWM) 1.6% dip was softer than the 2.5% giveback among large-cap growth shares. 

• Concerns grew about a possible US recession—Goldman Sachs trimmed its Q1 GDP tracker to just 0.6%, while the Atlanta Fed’s GDPNow model (ex-gold) shows a 0.5% first-quarter contraction. 

• Still, a bevy of March data is yet to be factored into those outputs, and the prediction markets show a +0.5% Q1 expansion rate. 

• It’s clear that the president and Treasury Secretary Scott Bessent are not all that worried about short-term market and macro noise. It was interesting earlier this month—when the S&P 500 was near its lows on March 13—that tariff talk quieted for a few days, and equities went on to rip higher. 

• With the mid-term elections about 19 months away, if there is an official recession and the unemployment rate jumps to, say, 5%, it will take time for full employment to return. That may leave incumbent Republicans in a tough spot if there is a delay in what we expect to be strong US economic growth looking out 12-18 months.

In the here and now, domestic macro worries have taken their toll on the US Dollar Index (DXY).

• The EURUSD pair flirted with $1.10 in mid-March, but the greenback appears to have found a footing. 

• Currency swings notwithstanding, European markets (VGK) once again outperformed the S&P 500, losing just 1.1% during the quarter’s final full week. 

• The DXY’s 3% March swoon would be its worst monthly plunge since November 2022.

In the bond market, short-term yields have pressed lower. 

• The 2-year rate is now firmly below 4%, steepening the curve. 

• The benchmark 10-year Treasury note yield rose to almost 4.4% early last week but settled essentially unchanged at 4.255%--it appears pinned to four-and-a-quarter since late February. 

• Inflation breakeven rates paint an interesting macro picture—the 2-year breakeven jumped to 3.28%, its highest mark since March 2023, but longer-term market-implied inflation indicators point to more subdued readings. 

• During the FOMC presser two weeks ago, Chair Powell mentioned that the Fed prefers the 5y5y forward measure, which is market-based inflation expectations exclusively in the 5-10-year future window. It still looks sanguine at 2.16%. 

• Other bond market indicators, like corporate credit spreads, don’t scream recession—company balance sheets still look good, so there’s low concern of corporate defaults even if there’s a modest recession this year.

Elsewhere, gold made more all-time highs, eclipsing $3,000 per ounce, and approached the $3,100 level for the first time. 

• The precious metal continues to be firmly bid amid ongoing central bank buying. Gold has closed higher in all but one week of 2025. History shows, however, that dramatic profit-taking events can come with little warning in the perceived safe-haven asset. 

• Silver also advanced last week, adding more than 3%. 

• Copper—a highly industrial metal—notched an all-time high of its own, but primarily due to tariff impacts rather than buoyed global growth sentiment. 

• Finally, bitcoin keeps trading like a risk asset—it rose to the high $80,000 area before easing to a fractional weekly loss.

This week, it’ll be a one-two punch of Liberation Day on Wednesday and Jobs Day on Friday. There will be plenty of employment data dotting the tape to begin April. An added treat, Powell presents publicly Friday afternoon along with a chorus of Fed speak earlier in the week. Q1 corporate earnings then start rolling in next week.

Weekly Calendar Look Ahead

Jobs Week gets going with a quiet Monday. Just Chicago PMI and the Dallas Fed Manufacturing Index for March are on the economic docket, along with Treasury bill auctions later in the morning. The macro focus will continue to be on words out of the White House on tariffs.

The real action begins Tuesday. Redbook retail sales—one of the few indicators suggesting consumer strength—hits in the premarket. After the opening bell, a final update to S&P Global’s Manufacturing PMI crosses the wires right before the ISM’s Manufacturing PMI for March and February’s Job Openings and Labor Turnover Survey (JOLTS). Construction Spending makes for a trio of key macro clues. 

• Here’s our take: 10 a.m. ET Tuesday will set the tone for the week. Loud stagflation calls can be hushed for a moment if we see a pickup in manufacturing sentiment and cooler Prices Paid subindex readings. 

• Wall Street expects both Manufacturing PMIs to be close to 50—the demarcation line between perceived expansion and contraction. 

• Recall that last week, the flash read of S&P Global Manufacturing PMI was worse than expected, while the preliminary Services read was upbeat. If Manufacturing hangs in there, the recent recession worry will be tempered. Our team noticed that expectations for ISM Manufacturing Prices Paid is very high at 65—that's a high bar, so there is plenty of room for a cooler-than-expected print, which the stock market would like. 

• The worst scenario is weaker soft data with a giveback in hard data, like Construction Spending. We aren’t as concerned about what JOLTS shows since it is a dated indicator, and we know that the employment situation is much looser compared to 12-18 months ago. 

• The first of the month also means March vehicle sales roll in—typically not a market mover, but with looming tariffs, there could be some signal from the data.

The tone may be set on Tuesday, but Trump holds the cards on Wednesday. It will be Liberation Day for the bulls or the bears, but probably not both. 

• Our thinking is that given steep selling from Wednesday through Friday last week, we believe there could be an increased likelihood of a market rally around Tariff Day. Much will depend on price action early this week, however. Of course, macro data matter, too. 

• ADP Private Payrolls paints the tape in the premarket—usually a poor gauge of what Friday’s BLS numbers show—but expectations call for +120,000, a pickup in employment from February’s light 77,000 gain. 

• February Factory Orders and Durable Goods come later in the morning. We don’t see too much volatility getting stirred up from those figures.

Thursday begins early with March Challenger Job Cuts. This report garnered significant attention a month ago for its material jump (the biggest sequential increase since April 2020) that didn’t really translate into the February payrolls report. 

• We would not be surprised to see the first 200,000+ number since July 2020—and the bears would love to see that. It’s important to call out that if there’s indeed a string of lousy employment data, we’ll see more Fed rate cuts get priced into the next 12 months. 

• Call it the “Fed Put” if you wish, but the FOMC has ammo to stimulate the economy, so long as consumer prices don’t trend too hot. Powell seemed dovish in March despite other members of the Committee (Musalem, Goolsbee) sounding more hawkish. 

• Initial Claims remain low, suggesting there are no material layoffs going on among lower-wage workers—federal jobs cuts are not captured in the official Initial Claims data, by the way. 

• Trade balance data won’t be too dramatic Thursday morning, but watch out for what Services PMIs reveal later. Below-consensus S&P Global and ISM surveys could cast doubt on the health of the non-manufacturing sector. 

By Friday, we should know much more about the macroeconomic situation; maybe some uncertainty will be out of the way on the trade policy front. So, the focus can turn to the labor market. 

• The consensus calls for just 128,000 jobs created in March, down from 151,000 in February and well below the three-month average of +200,000. 

• Forecasters project the unemployment rate to rise a tenth of a point to 4.3%, still within the range since last summer, while average hourly earnings are seen holding at a +0.3% increase rate. Weekly hours are expected to increase slightly to 34.2 hours. 

• Overall, we are in a “good news is good news” environment, so the bulls would welcome a strong March labor market report, which could potentially set the stage for a Q2 rally. With investor sentiment extremely depressed, just a small bout of decent data could spark a rally. 

• Historically, approximately 60% of 10% corrections have led to declines of 15% or more, so a break below the SPX March low of 5505 could potentially indicate further downside risk.

• Finally, Powell speaks Friday morning—that could be a bullish catalyst if stocks are down after the NFP report.

Fiscal Policy Framework

We’ll be watching what happens in Florida this week as its 1st and 6th Congressional Districts hold special elections to fill newly vacant seats left by Matt Gaetz and Mike Waltz. These are reliably red districts, but Democrats are upbeat about their chances, or at least making the special elections close enough to drive the narrative of a voter rebuke of Trump’s first 100 days in office. An early referendum on Trump 2.0, the GOP’s slim House advantage could dwindle further. 

Meanwhile, we expect President Trump to ink reciprocal tariffs into law on Wednesday, with duties being collected on Thursday. He told the White House media pool point-blank that the tariffs are permanent for the duration of his term. Goldman Sachs forecasts the US effective tariff rate to soar from 3% to 13%. BofA’s macro team sees a less aggressive 8% US duty as a percent of all imports. 

On Capitol Hill, the GOP works on passing a budget resolution tied to extending the 2017 Tax Cuts and Jobs Act without significant spending cuts, all while navigating internal divisions over raising the debt ceiling. So, we expect uncertainty to remain high on the fiscal front as well.

Risks and Opportunities

While a bounce is certainly possible in the weeks ahead, the reality is that near-term US GDP growth will come under pressure. There’s probably about a 1-in-3 chance of recession this year before economic growth jumps in 2026 and beyond. The unemployment rate may increase to above 4.5%, in which case two or three Fed rate cuts would be likely over the next 12 months. Given a troubled and volatile macro backdrop, a 20x or higher S&P 500 P/E is no bargain—particularly as EPS estimates retreat. Just last week, the consensus CY 2025 SPX per-share earnings forecast dipped under $270 for the first time since 2023. 

A risk is that broad-based selling across stocks and other areas that have done well is needed for a capitulation-like bottom. Be on the lookout for a day or string of sessions in which growth (Tech, Discretionary, Comm Services), cyclicals (Financials, Industrials, Materials, Energy), and defensives (Utilities, Health Care, Staples, Real Estate) all decline as the VIX spikes. That might coincide with sharp declines in oil and gold, too. Our team believes such an event could present a potential buying opportunity, as markets may soon begin to look ahead to a more stable economic foundation beyond the next few quarters.

Quick Hits

• 51% of UMich respondents offered unsolicited negative comments on the state of the US economy

  • Those surveyed expect inflation to average 4.1% in the next 5-10 years, the highest since 1993

• The recession probability in the United States is at the same level as it was in October 2024, per Bloomberg

• European Financials ETF (EUFN) pace for their highest monthly closing price ever 

• The S&P 500 is 20.7x earnings, the S&P 500 EW is 16x earnings

• Gold is now outperforming the S&P 500 since the October 2022 bear-market bottom

• Headline PCE inflation rose to 2.54% YoY in February, while the annual core rate is now 2.79%

• The 2yr/30yr yield spread widened to its steepest in three years last week, normally a sign of economic growth ahead, but long-term inflation expectations and concerns about the debt remain elevated