Weekly Market Insights | Fed Happy Talk Breaks Bad News Streak

Stocks notched a solid gain last week as upbeat comments from the Fed helped stocks snap their four-week losing streak.  

The Standard & Poor’s 500 Index rose 0.5 percent, while the Nasdaq Composite Index picked up 0.17 percent. The Dow Jones Industrial Average led, gaining 1.20 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, rose 0.75 percent.^1,2

A Solid Week

Stocks opened the week higher despite weaker-than-expected retail sales. On Tuesday, stocks pulled back on disappointing economic data and renewed Middle East tensions.^3,4

Stocks roared higher Wednesday as investors looked forward to the Federal Reserve’s meeting. As widely expected, the Fed kept rates steady, but Fed Chair Powell’s comments buoyed investors’ spirits.⁵

Stocks dipped Thursday and opened lower Friday, but investors showed some confidence by pushing prices higher into Friday’s close.⁶

The Fed Stays Positive

Amid all the market turbulence of late, the Fed was a steadying influence. At his post-meeting press conference, Fed Chair Powell stressed that the economy remained strong and suggested that any impact from tariffs on inflation would be short-term.

But the primary reason investors cheered came down to this: most Fed officials still penciled in two interest rate cuts for this year. In late January, Powell said the central bank was in no hurry to adjust its policy stance, which unsettled the markets.⁷

^{After an approximate 10% stock market correction and a brief period of consolidation, investors are returning to buy what is believed to be oversold equity markets that can bounce as many believe that for a rally to be sustainable it needs to be accompanied by actual, positive, concrete news of reduced policy uncertainty.}

^{However, despite the tariff uncertainty challenges, I cited many reasons for optimism in the last week’s update and here are three more factors that could also rejuvenate the stock market and could reignite a rally:}

^{1. Improved Economic Growth Outlook
Recent weeks have seen a growth scare on Wall Street, with the Atlanta Fed's GDP now forecast for first-quarter GDP growth plummeting from nearly 4% in January to a negative 2.4% recently. A reversal in these economic growth expectations could swiftly boost equities. Positive economic data or a shift in the administration's tariff policies might serve as catalysts for such a rally.}

^{2. Attractive Valuation Levels
The stock market valuations need to reflect economic growth prospects that are significantly lower than many baseline forecasts. Currently, the S&P 500 is trading at a forward 12-month price-to-earnings ratio of about 20X. Additionally, mega-cap tech stocks are at their lowest valuation premium relative to the rest of the S&P 500 components since 2017. If economic growth does not deteriorate markedly, further declines in valuations could present attractive investment opportunities.}

^{3. Depressed Investor Positioning
Investor sentiment has turned notably bearish amid the recent sell-off. Indicators like the CNN Fear & Greed Index are at "Extreme Fear" levels, and the AAII Investor Sentiment survey shows bearish responses at their highest since the 2022 bear market. Goldman Sachs's proprietary sentiment indicator has also declined sharply to a neutral stance.}

^{A further drop to deeply negative levels could statistically signal above-average equity market returns. Further, I believe that most of the tariff uncertainty has been essentially factored into the markets, but the real reasons for concern are always the unknows.} 

^{Across the pond, European stocks have surged with many European ETFs and mutual funds up well over 10% YTD and likely due for a pullback or some digestion. But on any modest dip, investors may consider European stocks for medium and long-term time horizons because if Germany and other EU countries actually execute stimulative economic policies and boost deficit spending, it will be long-term bullish for EU stocks. Stay tuned. . . .
Gold continues to rally in price as the world’s historical true store of value. Gold futures notably topped $3,500 a troy ounce and the fact that the dollar failed to meaningfully bounce from the prior week’s steep downturn added a tailwind to gold. Looking ahead, the uptrend in gold remains intact across all time frames, and until we see inflation expectations rollover meaningfully, the trend will favor the bulls.}

^{Oil (black gold) - Global economic uncertainty amid trade-war fears is weighing on demand expectations for oil. Meanwhile the potential for a significant increase in available crude supply on the global market given OPEC+ plans to raise output quotas next month and the prospects that Western sanctions on Russia could be lifted at any time if a cease-fire deal is reached in Ukraine, leave the fundamental backdrop favoring the oil bears with lower prices helping the inflation problem.} 

^{Digital gold - With just a week to go until the end of March, the first quarter has been disappointing, particularly in terms of price action rather than narrative for the crypto industry. Bitcoin (BTC) has dropped about 10%, its worst first-quarter performance since 2020, and ether (ETH) has posted its weakest first quarter since inception. Bitcoin has been relatively steady in March.}

^{As the first quarter-end approaches, negative liquidity and position management could lead to increased volatility and whipsaw price action in the crypto markets. A slightly more dovish tone from the Federal Reserve at its March meeting (even without actual interest rate cuts) combined with a weakening U.S. dollar, increased fiscal spending in the European Union and a U.S. economy that is slowing but not collapsing, are all factors that could support digital assets.}

^{Bitcoin sold off following President Trump's lack of a concrete update on a bitcoin strategic reserve or a tax-free crypto capital gains policy. Market participants were hoping for a tax-free capital gains framework or a bitcoin national reserve accumulation plan. Instead, President Trump reiterated his general support for the crypto industry, highlighting the role of stablecoins in maintaining the U.S. dollar's dominance in global trade. While supportive in the long term, the lack of immediate policy commitments is a short-term bearish signal. Accordingly, digital assets will likely struggle to sustain breakouts, with accumulation continuing at lower levels, particularly for altcoins.}

^{Partner with a Certified Financial Fiduciary® - In these volatile and uncertain times, the biggest value of working with a seasoned advisor, acting as a fiduciary, is having someone to help control emotions and not get caught up in making bad investment decisions. Let's face it, when times are turbulent, emotions will often trump logic, leading to devastating financial decisions. 
Email or call us at 732-888-4994 to schedule a complimentary 30 minute consultation and second opinion if you are not already a valued client of Castle Financial.}

This Week: Key Economic Data

Monday: PMI Composite—Services and Manufacturing.

Tuesday: Case-Shiller Home Price Index. Consumer Confidence. New Home Sales.

Wednesday: Durable Goods Orders. St. Louis Fed President Alberto Musalem speaks.

Thursday: Gross Domestic Product (GDP). Trade Balance in Goods. Weekly Jobless Claims. Retail & Wholesale Inventories. Pending Home Sales. Richmond Fed President Tom Barkin speaks.

Friday: Personal Consumption & Expenditures (PCE) Index. Consumer Sentiment.

^{Source: Investors Business Daily - Econoday economic calendar; March 21, 2025
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.}

This Week: Companies Reporting Earnings

Tuesday: McCormick & Company, Incorporated (MKC, MKC.V), GameStop Corp. (GME)

Wednesday: Cintas Corporation (CTAS), Paychex, Inc. (PAYX)

Thursday: Lululemon Athletica Inc. (LULU)

^{Source: Zacks, March 21, 2025. Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.}

“There’s only one corner of the universe you can be certain of improving, and that’s your own self."

– Aldous Huxley

A Checklist of Common Errors When Preparing Your Tax Return

Properly preparing your tax return can be tricky, but here are some tips to help you avoid common errors:

• Submitting your tax return online ensures greater accuracy than mailing it in. The e-file system can detect common errors and send your filing back to you for you to correct, saving you a ton of time in processing and delays.
• Print or type your full name, taxpayer identification number (SSN), and address (including zip code) clearly.
• Choose only one correct filing status.
• Enter your income on the correct lines and include a Form 1040 to declare additional income and adjustments as needed.
• Put brackets around negative amounts.
• Keep a copy of the signed return and schedules for your records.

This information is not a substitute for individualized tax advice. Please discuss your specific tax issues with a qualified tax professional. 

Tip adapted from IRS⁸

What is Mindfulness?

You may have heard various definitions of mindfulness here and there or have your own ideas about what it is. Do you completely clear your mind? Is there more to it?

Interestingly, mindfulness is as simple as it sounds. It refers to being fully present in where and what you’re doing. You can practice mindfulness while driving, walking your dog, or playing with your children. It’s practicing being in the here and now and not letting your mind take you out of the present moment. These obsessive thoughts can lead to anxiety and stress. 

To practice mindfulness, take a simple activity, like drinking your cup of coffee, and think about every sensation you’re experiencing. It takes practice, but is worth it to improve your mental strength!

Tip adapted from Mindful⁹

Out of the 100 years in the 20th century, there is only one that reads the same upside down as it does right side up. What year is it?

Last week’s riddle: I twist, I turn, but I don’t have curves. You can twist me to fix me, but you may throw me into disarray in the process. Hours later, you may cast me away. What am I?
Answer: A Rubik's cube.

Morning mists over the Tarn
Millau, France

Footnotes and Sources

^{1. The Wall Street Journal, March 21, 2025}

^{2. Investing.com, March 21, 2025}

^{3. The Wall Street Journal, March 17, 2025}

^{4. CNBC.com, March 18, 2025}

^{5. The Wall Street Journal, March 19, 2025}

^{6. The Wall Street Journal, March 21, 2025}

^{7. CNBC.com, March 18, 2025}

^{8. IRS.gov, May 16, 2024}

^{9. Mindful, October 3, 2024}