U.S. Market Performance: U.S. stocks tumbled last week on growth worries triggered by President Trump's tariff policies and cutbacks to federal spending. The S&P 500 Index fell 3.1%, bringing its year-to-date return to a loss of 1.7%. S&P sectors leading the decline included financials, consumer discretionary, and energy. Only the healthcare sector ended the week in positive territory.

International Market Performance: Internationally, stocks moved in the opposite direction, with developed and emerging markets up 3.1% and 2.9%, respectively. This brought their year-to-date returns to 10.6% and 5.2%. Developed market stocks rallied on reports that Germany has committed to spending almost $1 trillion on infrastructure and defense, while the emerging market was boosted by a rally in Chinese artificial intelligence-related stocks.

Interest Rates: Interest rates edged higher. The yield on the 10-year U.S. Treasury notes settled at 4.30% on Friday, up 0.09% for the week. The Bloomberg Aggregate and the Bloomberg U.S. Municipal Bond Indices slipped 0.6% and 0.5%, respectively.

Labor Market: The Labor Department reported that non-farm payrolls increased by 151,000 in February. Although slightly below the Bloomberg consensus forecast of 160,000, it was well ahead of January’s 125,000. The unemployment rate ticked up slightly to 4.1% from 4.0% in January. Average hourly earnings grew at a healthy pace of 4.0% year-over-year.

ISM Survey Data: February survey data from the Institute for Supply Management (ISM) pointed to a faster pace of expansion in the dominant services segment of the U.S. economy. The ISM Services Purchasing Managers Index (PMI) jumped to 53.5 from 52.8 in January. However, the Manufacturing PMI slipped to 50.3 from 50.9 in January. Index readings above 50 reflect expansionary conditions.

Although the overall economy appeared to be on firm footing through February, the combined impact of President Trump's aggressive tariff policies and cutbacks to federal spending as recommended by the Department of Government Efficiency (DOGE) could slow economic growth in the months ahead. The magnitude of the slowdown is not possible to determine at this point because of President Trump's vacillating pattern of execution.

The S&P 500 has retreated about 6% from its February 19th record high of 6,147. Given the mounting uncertainties associated with President Trump's policies, further downside risk remains. Last summer, the S&P 500 briefly retreated more than 8% following the release of weakening non-farm payrolls data. DOGE-related cutbacks and tariff-related uncertainties could trigger a similar weakening of payrolls over the next few months.

Inflation Focus: Inflation will be in focus this week. On Wednesday, the Bureau of Labor Statistics will release Consumer Price Index (CPI) data for the month of February. Bloomberg consensus forecasts for the overall CPI and Core CPI, which excludes food and energy prices, are 2.9% and 3.2%, respectively. These compare with January’s reports of 3.0% and 3.3%. All measures are calculated on a year-over-year basis.

Roger Khlopin, CFA
Chief Investment Officer

Aaron Nghiem, CFA, CIMA
Senior Portfolio Manager