Inflation Fears, Declining Sentiment Sink Equities
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Welcome to the Schwab Market Update podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead. I'm Keith Lansford, and here is Schwab's early look at the markets for Monday, March 31st.

Concerns about inflation was the latest culprit of market turmoil, sending stocks down about 2% Friday as the Fed's favored inflation report came in slightly hot and a primary indicator of consumer sentiment plummeted. It caps off a week that came in strong but faded quickly as growth fears are gripping investors with an 8-to-1 ratio favoring decliners as of midday.

Equity markets appear to be de-risking as losses are broad-based, though there does seem to be some shedding of growth sectors. The S&P 500 index closed down 112.37 points, or 1.97%, to 5,580.94%.

Breath continues to weaken on the S&P 500, and the S&P 500 tested multiple support levels beginning with the March 21st low of 5,603 and the March 13th low of 5,504. A breach of that could take us to the September 6th low of 5,402.

Meanwhile, the Dow Jones Industrial Average sank 715.80 points or 1.69% to 41,583.90 and the Nasdaq Composite dropped 481.04 points or 2.7% to 17,322.99.

February Personal Consumption Expenditures, or PCE, report showed core PCE landed at 0.4% monthly and 2.8% annually, 0.1% above expectations and the January levels for both. Core excludes volatile food and energy costs.

Meanwhile, consumer sentiment dropped to 57 in March from 64.7 the previous month, according to the final reading of the University of Michigan Consumer Sentiment Index. It's the lowest level in two years, while inflation expectations hit a two-year high, Bloomberg noted. Don't forget about tariffs, either. The consequences of the potential implementation next week continued to exacerbate market fears.

But the BCE report wasn't all bad. Headline data rose 0.3% monthly and 2.5% annually in line with both market expectations and the January reading. Personal income rose 0.8% month-over-month, double analysts' expectations for a 0.4% increase and slightly up from the 0.7% rise in January.

Personal spending was much lower at 0.1% month-over-month versus an expectation of 0.3%. The previous estimate from the Consumer Sentiment Survey was 57.9%, which was also the current consensus estimate, which means it came in nearly an entire point lower. The survey's long-term inflation median actually rose to 4.1%, the highest level in decades after an initial reading of 3.9%.

PCE and the Michigan survey suggest sticky inflation and household financial stress, raising concerns about the economy's growth and potential for stagflation or recession. The bond market's reaction to it all proved interesting, with rates moving lower, suggesting a fixation on lower growth. April 2nd is when the scale of President Trump's tariff plans is likely to be unveiled, even if implementation is again delayed.

The recent news about potential 25% tariffs on cars made outside the U.S. created turmoil for already unstable markets last week, so it'll be important for investors to stay up to date on what the potential impact of various tariffs are and to keep their ears tuned into the latest developments as more tariff news inevitably breaks.

Employment data hits next on Tuesday with the release of the Job Openings and Labor Turnover Survey, or JOLTS, along with ISM Manufacturing PMI. And Bitcoin futures followed the rest of the market, dropping $3,455 to $84,000 when equities closed.

While numerous big names traded lower, including a 3.48% decline for the Magnificent Seven, Lululemon was one of the hardest hit stocks Friday, down 14.19% after fourth quarter earnings beat expectations, but its guidance for revenue came in under analyst projections. This has been the Schwab Market Update Podcast.

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