Global Markets Weekly Wrap KW 12 : U.S. Stocks Rally as Dow Leads Gains, Tech Lags Behind
The week ended on a positive note for U.S. stock markets, with most major indexes showing gains and breaking out of multi-week downturns. The Dow Jones Industrial Average emerged as the strongest performer, climbing by 1.2%. Meanwhile, the S&P MidCap 400 achieved its first weekly increase since the beginning of the year. However, large technology stocks did not fare as well, leading to a relatively poor performance for the tech-focused Nasdaq Composite, which ranked as the weakest major index for the week. Value stocks continued to outshine growth stocks for the fifth consecutive week, contributing to a notable year-to-date lead.
Traders at T. Rowe Price noted that overall market activity was subdued, with trading volumes remaining light throughout the week. Thursday saw the lowest daily trading volume of the year, indicating a cautious approach by investors. Market participants were closely monitoring economic developments, adjustments to monetary policies, and ongoing geopolitical uncertainties, all of which played a role in shaping investment strategies.
A significant event during the week was the Federal Reserve's March policy meeting. As expected, the central bank opted to keep its benchmark interest rates steady at a range between 4.25% and 4.5%. Officials at the Fed maintained their earlier projection of two anticipated rate cuts later in the year, totaling 50 basis points. However, they adjusted their outlook on inflation for the coming year while simultaneously lowering growth expectations for the nation's economy. The Fed also highlighted that economic uncertainty had increased, which added an element of caution to the broader outlook.
Despite this, the overall sentiment following the meeting was optimistic. Federal Reserve Chair Jerome Powell reassured the public that he believed the impact of recent tariff changes would be short-lived and that long-term inflation expectations remained well-anchored. His remarks signaled a dovish stance, leading to a positive reaction from investors, as stock markets posted strong gains in response.
Economic reports released during the week provided mixed signals about the state of the economy. One of the key data points came from the Census Bureau, which reported that retail sales for February grew by 0.2%. This figure was considerably below market expectations, which had projected a 0.7% increase. Furthermore, January's retail sales numbers were revised downward, revealing a sharper decline than previously thought. Despite this, a specific retail sales metric that excludes more volatile categories, such as automobiles and restaurants, showed stronger growth, with a 1% increase—exceeding projections.
Additional economic indicators presented a varied picture of business conditions. A survey of manufacturers in New York indicated a sharp decline in business activity during March, coupled with a noticeable drop in confidence regarding the future. Meanwhile, the housing market showed signs of resilience. Existing home sales in February posted a better-than-expected rise of 4.2%, supported by increased housing supply. Similarly, new home construction activity picked up, with housing starts climbing to an annualized rate of 1.5 million units, marking a substantial increase from the previous month, though still reflecting a year-over-year decline.
The bond market reacted to the Fed's projections, with U.S. Treasuries seeing positive returns as yields fell across various maturities. Municipal bonds also saw gains, even in the face of a high volume of new issuance. In the corporate bond space, investment-grade spreads tightened, and overall issuance met expectations. High-yield bonds started the week with lower activity but gained traction following the Fed's announcement, aligning with broader stock market trends.
Across the Atlantic, European markets showed moderate gains, with the STOXX Europe 600 Index ending the week in positive territory. This marked a turnaround after two consecutive weeks of losses. Investor optimism stemmed from hopes of increased government spending, though concerns over upcoming U.S. tariffs on European goods tempered gains. Major indexes across the region saw mixed performance; Germany's DAX ended slightly lower, while France's CAC 40 managed a modest increase, and Italy's FTSE MIB posted a more notable gain. The UK's FTSE 100 also ended the week on a positive note.
Central banks in Europe continued to grapple with the delicate balance between economic growth and inflation concerns. The Bank of England opted to maintain interest rates at 4.5%, with only one policymaker dissenting in favor of a rate cut. This decision was perceived as a hawkish stance, reinforcing concerns about persistent inflation. Sweden's central bank followed suit, keeping its benchmark rate unchanged and signaling that rates could remain at current levels for the foreseeable future. Meanwhile, Switzerland's central bank took a different approach, cutting its key interest rate to 0.25%, citing low inflation and increased downside risks.
European Central Bank (ECB) President Christine Lagarde addressed policymakers, emphasizing the importance of remaining vigilant amid rising trade tensions. She pointed out that new U.S. tariffs on European imports could negatively impact the eurozone's economic growth and potentially drive inflation higher. Analysts at T. Rowe Price expect the ECB to reduce interest rates further, with cuts likely to come in the spring and summer months.
In Asia, Japanese stocks experienced a strong week, with the Nikkei 225 and TOPIX indexes posting solid gains. The market rally was fueled by foreign investment interest in Japanese trading firms. The Bank of Japan kept its monetary policy unchanged, maintaining low interest rates while monitoring global trade conditions. The yen weakened slightly against the U.S. dollar, and bond yields declined marginally. Inflation data suggested that price pressures remained persistent but within expected ranges.
China's stock markets, on the other hand, ended the week lower after a recent stretch of gains. Investor sentiment took a cautious turn despite positive economic data indicating solid growth in retail sales and industrial production. Fixed asset investment also exceeded expectations, yet concerns lingered over continued weakness in the property sector and rising urban unemployment. Despite these challenges, some analysts upgraded their growth forecasts for China, expressing confidence in the government's ability to sustain its economic momentum.
Elsewhere, Turkey's financial markets faced turbulence following the unexpected detention of Istanbul's mayor on allegations of corruption. The development raised concerns over political stability and its implications for investor confidence. Meanwhile, in Brazil, the central bank raised interest rates again, though it signaled that future hikes may be smaller, depending on economic conditions.
Looking ahead, investors will be closely watching upcoming economic reports and key policy announcements. The next phase of U.S. tariffs is expected to be a major market-moving event, influencing corporate supply chains and profitability. Additionally, various economic indicators, including consumer sentiment, manufacturing data, and home sales figures, will provide further insights into the health of the global economy.
Checklist for the Next Two Weeks
Major economic events in the US include:
Initial Jobless Claims; GDP Annualized QoQ; Umich Sentiment; Conf Board Consumer Confidence; Durable Goods Orders; S&P Global Manufacturing PMI; MBA Mortgage Applications; New Home Sales
Major economic events around the world include:
Germany IFO Business Climate; UK CPI YoY; France Manufacturing PMI; India PMI Manufacturing; Mexico Bi-Weekly CPI