At a glance

Despite ongoing U.S. fiscal policy uncertainty, U.S. equities managed their first weekly gain in the last five, helped by a cautious Federal Reserve.

Number of the week:

-9.5%

The return of Information Technology stocks in the S&P 500 so far this year.

Term of the week:

Yield

The earnings generated and realized on an investment over a period of time, including the interest earned or dividends received from holding a particular security. It's expressed as a percentage based on the invested amount, current market value or face value of the security.

Quote of the week:

U.S. retail sales rebounded in February, rising 0.2% compared to a 1.2% January decline. The continuation of poor weather into February appeared to dampen activity. Control group sales, which contribute to the gross domestic product calculation, rose 1.0%, moderating the nearly 1% loss in January. Rebounds in sales for online stores and health and personal care stores were the primary drivers.

― Robert Haworth, CFA, Senior Vice President, Senior Investment Strategy Director, U.S. Bank

Global economy

Quick take: U.S. economic data rebounded from January weakness. Consumers are still spending, and housing market activity remains solid.

Our view: The U.S. economy appears likely to achieve a soft landing in 2025, aided by slowing inflation and solid domestic demand growth. Tariffs pose some risks to slow but improving growth in developed markets, including the eurozone, the United Kingdom and Japan. Emerging markets remain diverse as trade policies take center stage while China struggles to rekindle consumer demand.

  • U.S. retail sales rebounded in February, rising 0.2% compared to a 1.2% January decline. The continuation of poor weather into February appeared to dampen activity. Control group sales, which contribute to the gross domestic product calculation, rose 1.0%, moderating the nearly 1% loss in January. Rebounds in sales for online stores and health and personal care stores were the primary drivers. A decline in food service sales, including restaurants, likely reflected the impact of poor weather. A still-solid labor market, including last week’s low weekly initial jobless claims of 223,000, indicate consumer spending should remain a positive for the economy.
  • U.S. housing market data recovered from rough weather in January. Housing starts rose to a 1.5 million seasonally adjusted annual rate, up from 1.35 million in January. Building permits, which provide an estimate of future construction, slipped by 1.2% in February to a 1.46 million seasonally adjusted annual rate. Existing home sales rose 4.2% month-over-month in February as mortgage rates eased. However, an extended slide in home builder sentiment in March, now at the lowest level since August 2024, may weaken enthusiasm. The survey indicated concerns about current sales and prospective buyer traffic.

Equity markets

Quick take: Tariffs and associated risks to economic growth are impacting investor sentiment and equity prices. Conversely, inflation, interest rates and earnings remain directionally consistent with higher equity prices, supportive of our risk-on (aggressive) bias.

Our view: Inflation is largely stable with downside bias, interest rates are stable with a dovish bias and earnings projections for 2025 reflect double-digit year-over-year growth, all net positives. Tariffs and economic uncertainty remain headwinds that are likely to weigh on performance.

  • Performance remains lackluster across indices and sectors. For March, as of Friday’s close, the popular broad-based indices are down between 4.2% and 5.6%, with 10 of 11 S&P 500 sectors negative. Year-to-date, the worst-performing sectors are Consumer Discretionary (-13.9%) and Information Technology (-9.5%), widely believed to be the two most negatively impacted by looming tariffs.
  • Performance remains subdued at the top. The 20 largest S&P 500 companies by market capitalization, representing 45% of the index’s cumulative weight, are down roughly 6% year-to-date versus a 3.6% decline for the index. It is hard to envision the S&P 500 trending meaningfully higher without improved performance of these growth-oriented companies.
  • Domestic earnings projections for 2025 are robust, but with downside bias. Analysts forecast S&P 500 earnings of approximately $269 per share for 2025, according to Bloomberg, FactSet and S&P Cap IQ, reflecting 10% year-over-year growth. We anticipate modest downward revision to the 2025 earnings projections in coming weeks as the effects of tariffs become more apparent.
  • Broad market valuation is elevated yet short of extremes. As of Friday’s close, the S&P 500 trades at 21 times consensus 2025 earnings projections, above the 35-year historical average of roughly 16.5 times. Valuations can be a poor timing tool, because they can stay elevated for an extended period in the absence of widespread inflation, particularly given the technology-heavy nature of the S&P 500.
  • Company guidance is elusive. The first quarter corporate reporting period unofficially begins on April 11. We expect more companies to offer forward guidance, including the impact of how tariffs, inflation and government program cuts are impacting both consumer and business spending. According to FactSet, expectations are for first quarter sales and earnings to increase 4.3% and 7.0% year-over-year, respectively, modestly below fourth quarter results.

Bond markets

Quick take: Treasury yields fell last week, supporting positive returns across the bond market. Riskier corporate bonds delivered similar returns as Treasuries, suggesting stabilizing investor risk appetite. The Federal Reserve (Fed) held interest rates steady last week but maintained projections of two rate cuts later in 2025.

Our view: Solid credit fundamentals across most bond categories, including corporate, municipal and structured credit, paired with opportunities to lock in attractive income for years, support fixed income assets.

  • Bond yields reflect expectations that the Fed will hold rates steady at its meeting this week after inflation slowed in February. Inflation data released last week showed slower inflation, but recent survey data indicates concern that prices could accelerate in coming months. Fed communications said members prefer waiting for clearer evidence of decelerating inflation before delivering additional rate cuts. Fed members will update their projections for growth, inflation and policy rates this week, providing important insight into their perspective on managing monetary policy amid tariff uncertainty. Investors will also look for guidance on the Fed’s plans for managing its bond holdings, which have declined for three years. Slowing or pausing this runoff could provide incremental support for bond markets.
  • The Bank of England (BoE) and Bank of Japan (BoJ) are expected to hold rates steady this week. The BoE cut its key policy rate last month, but investors expect steady benchmark rates at 4.5% this week due to rising inflation and increased geopolitical uncertainty. Investors also expect the BoJ to hold its key policy rate steady after hiking last month. Unlike most other countries, Japan has raised rates, and investors expect at least one more hike this year to slow inflation.
  • Solid fundamentals and compelling yields support corporate and municipal bonds. Both underperformed last week as investors shifted to the safety of government bonds. The extra yield on corporate and municipal bonds over Treasuries rose, improving the compensation investors receive for taking on credit risk. Corporate debt issuers generally have low to normal leverage compared to the past and generate sufficient cash flow to service their debt. Municipal bonds also have generally strong fundamentals considering most states have healthy cash balances.

Real assets

Quick take: Decreasing Treasury yields benefited publicly traded real estate investment trusts (REITs), which delivered mildly positive returns last week. Gold and copper prices continued to increase, and oil prices also rose on geopolitical tensions in the Middle East.

Our view: Publicly traded real estate investments exhibit generally constructive fundamentals with steady rent growth but have somewhat elevated valuations compared to income opportunities in Treasuries.

  • Further interest rate cuts could benefit REITs. Fed officials maintained their guidance for positive economic growth and somewhat stubborn inflation with two expected interest rate cuts in 2025. Economic growth helps support real estate fundamentals through better occupancy rates and operating income growth while lower debt costs contribute to improved cash flow. Property developers and owners also benefit from lower borrowing costs when Treasury yields and interest rates fall. Real estate company income compared to Treasury yields indicate publicly traded REITs are somewhat expensive relative to historical levels, but declining Treasury yields could normalize valuations somewhat. Despite tariff and inflation uncertainty, REITs have delivered positive returns year-to-date.
  • Broad commodity exposures delivered positive returns, with copper, gold and oil prices rising. Copper prices, often perceived as an indication of economic activity, increased more than 4% last week, extending year-to-date price increases beyond 20%. Gold prices rose around 1% and are up almost 15% year-to-date. Some investors view gold as a hedge against heightened uncertainty in stock and bond markets. Oil prices rose last week on renewed tensions in the Middle East. Last Thursday, the U.S. extended sanctions to a refinery in China that processes Iranian oil, which coincided with the largest one-day oil price increase of the week.
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Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. The Consumer Price Index is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is one of the most frequently used statistics for identifying periods of inflation or deflation.

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This information represents the opinion of U.S. Bank Wealth Management. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.

Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio.

Diversification and asset allocation do not guarantee returns or protect against losses.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. 

Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility.

Investments in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in fixed income securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities.

Investments in high yield bonds offer the potential for high current income and attractive total return, but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer’s ability to make principal and interest payments.

The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes, but may be subject to the federal alternative minimum tax (AMT), state and local taxes.

There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).

The information provided represents the opinion of U.S. Bank and is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific investment advice and should not be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation.

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