Recent data suggests that U.S. consumers are growing increasingly pessimistic about the economic outlook, and the financial markets are starting to reflect that reality. Here’s what’s happening, and what it could mean for your portfolio.

Fed Chair Powell’s comments helped ease fears and lead the stock market higher and bond yields lower.

Since 2022’s difficult equity market, the S&P 500 has had an impressive momentum run, posting significant gains throughout 2023 and 2024. Investors have been optimistic about a recovering economy, strong corporate earnings, and AI innovation. However, on February 19th the S&P 500 entered a downturn, declining 10% from peak levels in only 16 trading days. Although U.S. equity markets appear to have stabilized, many investors are still rattled: could this happen again? Let’s take a look.

Despite being in oversold territory, the U.S. stock and bond markets declined again on concerns of softening economic data and volatile tariff headlines.

The latest Consumer Price Index (CPI) report shows that headline inflation cooled more than expected, dropping to 2.8% year over year in February from 3.0% in January, slightly below the anticipated 2.9%. Core CPI, which excludes food and energy, also declined to 3.1% year over year, marking the smallest gain since April 2021. Markets welcomed the news, with major indexes opening higher on Wednesday in response.

With 4Q24 earnings on track to grow 17%, and 10 out of 11 sectors delivering positive performance, our portfolios are currently in base positioning.

On again/off again tariff policy and other geopolitical news pushed equity markets lower while yields rose.

The U.S. economy is at an inflection point as President Trump’s latest round of tariffs on Canada, Mexico, and China stokes concerns over inflation and slowing growth. While U.S. exceptionalism has underpinned global markets for over a decade, recent developments raise questions about whether cracks are forming in the foundation. What does this mean for portfolios?

Despite weaker economic data affecting short-term markets, the persistence of a relatively strong consumer underpins expected longer term performance.

Robust economic data and expectations for fewer rate cuts this year hurt equities as bond yields rose.