Market Recap – Friday, March 28, 2025
Risk-Off Sentiment Prevails Amid Inflation and Trade Concerns
US equities saw a sharp decline on Friday, with the S&P 500 experiencing its second-worst day of the year and the Nasdaq posting its fourth-worst. The major averages ended the week in the red, marking a fifth weekly loss in the past six. The "Mag 7" tech stocks were the largest drag, with Alphabet (GOOGL) and Amazon (AMZN) among the worst performers. Other underperformers included athletic apparel companies (LULU), China tech, apparel retail, cruise lines, airlines, casinos, and industrial sectors. Precious metals miners, utilities, real estate, and certain consumer staples were some of the few sectors that posted gains, with gold setting a new record high, closing up 0.8%. Treasuries were firmer with a flattening curve, while Bitcoin futures declined by 3.2%, and WTI crude ended the day 0.8% lower, though it posted its third consecutive weekly gain.
Trade and Inflation Concerns
The market remained firmly in a risk-off mode, driven by concerns over trade and inflation. Investors are anxiously awaiting the April 2 "Liberation Day" announcements on reciprocal tariffs, hoping for clarity around the uncertainties. Despite some positive trade talks with Canada and the EU, the threat of higher tariffs on autos and other sectors, coupled with fears of revamped pricing pressures on domestic consumers, is fueling inflation concerns. Core PCE inflation came in hotter than expected, rising 0.4% month-over-month in February, which, along with an uptick in inflation expectations, is adding to the hawkish sentiment surrounding the Federal Reserve. The final Michigan Consumer Sentiment reading also saw inflation expectations rise to 5.0% for one year, marking a 32-year high for the five-year forecast.
Economic Data and Fed Outlook
In terms of economic data, personal income and spending came in stronger than expected, with February personal income rising by 0.8% and personal spending up by 0.4%. However, the core PCE inflation index raised concerns, contributing to a continued hawkish outlook from the Fed. San Francisco Fed President Daly suggested that two rate cuts in 2025 are still on the table, while other Fed officials, including Atlanta's Bostic, have commented on the potential risks of inflation. Investors are focused on next week’s key economic releases, including the ISM manufacturing and services data, as well as the highly anticipated March nonfarm payrolls report.
Corporate Earnings and Updates
Earnings updates were relatively sparse on Friday, with notable disappointments coming from lululemon athletica (LULU), which missed guidance despite beating on revenue and earnings. The company cited weaker-than-expected comps and noted that tariffs on imports from China and Mexico would weigh on future performance. Oxford Industries (OXM) also lowered guidance, highlighting decelerating consumer demand and the impacts of a challenging retail environment. On the positive side, Argan Inc. (AGX) reported strong Q4 results, with significant growth in its Power Industry Services segment, while Braze (BRZE) delivered solid earnings and raised its guidance for the year.
Notable Market Movers
Among notable gainers, Argan Inc. (AGX) surged 19.9% after a strong earnings beat, and W.R. Berkley (WRB) rose 7.5% on news of a strategic investment from Mitsui Sumitomo. Applovin (APP) climbed 4.1% after addressing short-seller concerns, and Braze (BRZE) gained 2.2% following strong customer growth. On the downside, Wolfspeed (WOLF) plunged 51.9% after failing to reach an agreement on a debt swap, and lululemon (LULU) fell 14.2% due to weak guidance. Other notable decliners included Bausch + Lomb (BLCO), Oxford Industries (OXM), and DoubleVerify (DV).
S&P 500 Sector Performance
Sectors were broadly mixed, with utilities, real estate, and healthcare outperforming. Materials also showed strength, rising 1.74%. On the other hand, communication services, consumer discretionary, tech, and industrials all underperformed, with tech falling 2.43% and consumer discretionary down 3.27%.
Here’s Our Take
The market is clearly navigating a period of heightened uncertainty, with concerns about inflation and tariffs taking center stage. The sharper-than-expected core PCE reading and rising inflation expectations suggest that inflation remains a key risk, which could prompt the Fed to maintain a more hawkish stance in the near term. Investors should continue to be cautious, particularly in sectors vulnerable to higher tariffs or those with stretched consumer demand, such as consumer discretionary and retail. On the other hand, defensive sectors such as utilities, real estate, and healthcare could provide some relative safety. Investors may also consider commodities like gold, which is benefiting from inflation fears. As the market digests trade policy and inflation data, a balanced approach focusing on quality and resilient earnings may offer better protection in the face of macroeconomic challenges.