After a dismal round of Friday statistics, stocks closed the last full week of March on a bad note, and a mix of sticky inflation and concerns over consumer health is mostly responsible.
After declining 767 points at its session low, the Dow Jones Industrial Average DJIA closed with a loss of roughly 716 points, or 1.7%. Based on preliminary statistics, The tech-heavy Nasdaq Composite COMP lost 2.7%; the S&P 500 SPX shed 1.7%. For all three of the key indices, the drop reversed weekly gains; these remain on course for both March and first-quarter declines.
Whose responsibility is this?
First, there is Friday’s economy report. Investors received the February personal-consumption spending numbers including the Federal Reserve’s preferred inflation measure ahead of the market open. It revealed the core PCE price index, which excludes food and energy prices, gained a stronger-than-expected 0.4% in February (economists polled by the Wall Street Journal had penciled in 0.3%). That drove the year-over-year estimate up to 2.8% from 2.7% and confirmed once more that inflation is fixed above the Fed’s 2% objective.
The same batch of statistics, however, also revealed that personal expenditure fell in February, raising market worries that other elements or uncertainties over President Donald Trump’s trade policies are reducing spending.
“Before the tariff impact arrives, we are already seeing inflation. Surface-level classic stagflation patterns of high inflation and a weakening economy abound. If these patterns continue, the Fed has a problem as inflation indicates hold/raise rates and the economy indicates cut,” Louis Navellier, founding member of Navellier & Associates, said in emailed remarks.
As Navellier pointed out, it is far too early to pronounce the U.S. economy to be engulfed in a full-fledged “stagflationary” event. Like what beset the American economy in the 1970s, stagflation is the pernicious mix of slow or declining growth accompanied by high unemployment and ongoing inflation.
However, Friday’s PCE numbers along with another depressing consumer-sentiment reading from the University of Michigan, whose poll also revealed a notable increase in inflation expectations, heightened concerns.
Regarding rate reduction, fed-funds futures saw market pricing in more Fed easing. The CME FedWatch Tool shows that, as of Friday, the likelihood of three or more quarter-point declines in 2025 was 63.2%, up from 51.1% on Thursday. Fed representatives penciled in two rate cuts for this year earlier this month.
And Treasurys mobilized, dragging down yields—which run counter to prices. Dow Jones Market Data shows the yield on the 10-year Treasury note BX:TMUBMUSD dropped 11.6 basis points to 4.254%, the largest one-day drop since Jan. 15.
Analysts and traders interpreted that as evidence investors were more concerned with the future of growth than with inflation.
Economist David Rosenberg of Rosenberg Research examined the income statistics contained in the PCE numbers closely. Rising barely 0.1% in each of the past three months and running at a “almost-stall-speed” rate of just over 1% year over year, he added real, or inflation-adjusted, personal wages net of government fiscal transfers had “virtually stalled out.”
“This doesn’t exactly match the hallmark of a very tight labor market,” Rosenberg remarked in a note. “Perhaps this is what bond investors are observing: less of the “flation” and more of the “stag.”
Feeding those stagflation concerns, tariff-related stories including Trump’s application of automobile penalties earlier this week have been blamed mostly for this week’s drop. The planned April 2 announcement on reciprocal tariffs is attracting investors seeking to either eliminate or magnify trade policy uncertainty.
