Key Takeways:
- The second Bureau of Economic Analysis estimate of Q4 2024 U.S. real GDP growth remained unchanged at 2.3%, adding confidence that the economy ended the year on solid footing.
- Current GDPNow projections for Q1 2025, however, have economic growth turning negative to –2.8%, reflecting expected declines in real personal consumption expenditures, net exports, and real private fixed investment.
- Muted growth expectations, along with high inflation expectations and a softening labor market, led consumer confidence to drop meaningfully in February.
- Sticky inflation weighed on equity and fixed income markets after the January CPI report was released mid-month, but the PCE report painted a more favorable picture of price levels and drove a late month rally that helped major indices pare some losses.
- The strength of U.S. consumers remains a concern for markets though, as the PCE report was not all positive and showed consumer spending fell by 0.5%, the most in almost four years.
- After outperforming in 2024, U.S. stocks have lagged international markets so far in 2025, with Europe and China showing relative strength driven in part by a weakening USD.
- Fixed income markets broadly finished higher in February and lower rates provided some relief to borrowers as the yield on 10- year Treasuries, often a reference point for mortgages, finished the month at a recent low of 4.24%.
- After climbing higher in 2024, gold and bitcoin also ran out of steam in February, with bitcoin and other cryptocurrencies falling sharply in the second-half of the month.
- Markets opened up March experiencing high volatility as President Trump confirmed he would follow through with tariffs on Mexico, Canada, and China that were previously delayed 30-days after being announced in early January, though it remains to be seen how long they will stay in place.
- With all of the uncertainty surrounding tariffs, it remains difficult to properly assess or predict the impact on investments since the situation continues to evolve, though they are likely to be inflationary and hamper global trade.
- Should investors find themselves in a prolonged period of heightened market volatility, the best defense is typically a well- diversified portfolio with overall risk levels aligned with long-term goals, and times of market dislocation can be viewed as opportunities to deploy capital at more compelling valuations, tax loss harvest, or review financial goals.
