Stocks struggled to gain steam last week as uncertainty around President Trump’s tariff plans continued to loom over markets.
The S&P 500 (^GSPC) popped about 0.5% while the Dow Jones Industrial (^DJI) rose more than 1%. The tech-heavy Nasdaq Composite (^IXIC) added nearly 0.2%.
In the week ahead, a reading of the Fed’s preferred inflation gauge will highlight the economic releases. Updates on activity in the manufacturing and services sectors, consumer confidence, and the final reading of fourth quarter economic growth are also expected.
On the corporate front, quarterly results from Dollar Tree (DLTR), Lululemon (LULU), and KB Home (KBH) will headline a subdued slate of scheduled financial updates.
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The Federal Reserve held interest rates steady last week while updating its economic forecast to project higher inflation and slower economic growth than previously thought. The median forecast from Fed officials signals two interest rate cuts in 2025, in line with what markets expected headed into the meeting.
Federal Reserve Chair Jerome Powell admitted tariffs have added increased uncertainty to the outlook. He added that the most likely outcome is that higher inflation in 2025 will be a “transitory” impact from tariffs.
“I think that’s kind of the base case,” Powell said. “But as I said, we really can’t know that. We’re going to have to see how things actually work out.”
Wall Street economists and investment strategists largely took the meeting to mean the Fed, like the rest of markets, is in wait-and-see mode in anticipation of Trump’s tariff plans.
“When the path forward is so unclear, you kind of just take it with a grain of salt,” Ross Mayfield, Baird Private Wealth Management investment strategist, told Yahoo Finance. “Go back to [the] basics and focus on the drivers of either the individual equities or the sectors in the market that you own.”
Federal Reserve Chairman Jerome Powell speaks at a news conference after the Federal Open Market Committee (FOMC) meeting on March 19, 2025, in Washington D.C. (Yasin Ozturk/Anadolu via Getty Images) ·Anadolu via Getty Images
While markets are patiently waiting for clarity on when, or if, tariffs could impact inflation, investors will get a look at price increases for the month of February.
Economists expect more signs of stalling inflation in the Personal Consumption Expenditures (PCE) release due Wednesday. Economists expect annual “core” PCE — which excludes the volatile categories of food and energy — to have clocked in at 2.7% in February, up from the 2.6% seen in January. Over the prior month, economists project “core” PCE at 0.3%, unchanged from January.
“Inflation remains the big hurdle for consumers, and we forecast some sticky price pressures in the February data,” a Wells Fargo team of economists wrote in a note to clients on Friday.
22V Research president Dennis Debusschere told Yahoo Finance that now that markets are through the Fed meeting, the focus will shift back to President Trump’s tariffs and the possibility of reciprocal duties.
And figuring out how any of those policy plans could impact corporate profits this year is “absolutely what the market’s been struggling with” amid the S&P 500’s recent 10% decline, per Debusschere. This struggle was front and center on Friday too, as both Nike (NKE) and FedEx (FDX) stocks dropped after the companies warned that looming economic headwinds such as tariffs could weigh on profits this year.
In a social media post on Wednesday, Trump described April 2 as “liberation day in America.” But exactly what will happen remains an open question for markets.
“Until we get to April 2, we’re kind of sitting and waiting for some direction and for some clarity,” Piper Sandler chief investment strategist Michael Kantrowitz told Yahoo Finance.
Kantrowitz argued that policy uncertainty was the leading factor in the recent market sell-off, as that unknown has now clouded the outlook for the Federal Reserve and potentially for corporate earnings. Typically, Kantrowitz said, markets would want more clarity on the initial catalyst that sparked the sell-off before moving higher.
“Usually, [when] the primary catalyst that stops becoming a problem, essentially, that allows the market to find its footing,” Kantrowitz said.
Whenever there is more clarity on tariffs, strategists believe investors will be greeted with a market that presents a better balanced “risk-reward,” as Citi US equity strategist Scott Chronert wrote in a note to clients on Friday.
Chronert’s team uses an indicator called the Levkovich Index, which takes into account investors’ short positions and leverage, among other factors, to determine market sentiment. The current reading is 0.36, below the 0.38 that signals markets have entered euphoria, or an overstretched peak. Markets had been in euphoria per the index since November 2024.
As seen in the graph below, prior periods where the market extends into euphoric territory are often followed by drawdowns in the market. This recently happened when the market extended into euphoric territory prior to the past month’s S&P 500 correction. Chronert noted the recent retreat from euphoric territory signals “some froth has been taken out of the market.”
“This is a more balanced starting point for equity markets to manage through evolving first half risks,” Chronert wrote.
Economic data: Chicago Fed activity index, February (-0.14 expected, -0.03 prior); S&P Global US Manufacturing PMI, March preliminary (51.5 expected, 52.7 prior); S&P Global US services PMI, March preliminary (51 expected, 51 prior); S&P Global US Composite PMI, March preliminary (51.6 prior)
Earnings: Dragonfly (DFLI), KB Home (KBH), Oklo (OKLO)
Economic data: FHFA house price index, month over month, January (0.3% expected +0.4 prior); S&P CoreLogic CS 20-city year over year, non-seasonally adjusted, January (4.7% expected, 4.48 prior); Conference Board Consumer Confidence, March (94 expected, 98.3 prior); Richmond Fed manufacturing index, March (6 prior); New home sales month over month, February (+3.5% expected, -10.5% previously)
Economic data: PCE inflation, month over month, February (+0.3% expected, +0.3% previously); PCE inflation, year over year, February (+2.5% expected, +2.5% previously); “Core” PCE, month over month, February (+0.3% expected, +0.3% previously); “Core” PCE, year over year, February (+2.7% expected; +2.8% previously); University of Michigan consumer sentiment, March final (57.9 expected, 57.9 prior)
Earnings: No notable earnings.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
