The Pulse on the Economy and Capital Markets: March 2025

To Summarize: U.S. markets have taken a hit in March, with stocks and bonds underperforming, while international markets have held up better. Meanwhile, high-yield bond spreads are widening, signaling rising credit risk and caution. Higher-income consumer sentiment is weakening, which is leading to lower discretionary spending. And, trade policy uncertainty hit a 40-year high, leading businesses to pull back on capital spending.

The big takeaway? Investors are pricing in more risk due to rising uncertainty.

In the Markets: U.S. stocks sold off across the board, with the S&P 500 down 5% MTD. Investors continue to prefer developed international stock markets, which have performed nearly 18% better than the Nasdaq YTD. This disparity has worsened over the last month as since mid-February, the Nasdaq is down 11% and the S&P 500 is down about 8%, while developed and emerging international markets have remained relatively flat. That divergence reflects growing concerns over U.S. economic strength and future policy direction.

High-Yield Bond Markets Add Risk: Bonds continue to outperform U.S. markets YTD, but felt the pressure in March. The overall high-yield spread is now at 3.2%, wider than recent lows, but still narrow relative to historical averages. The high-yield bond market can be the proverbial canary in the coal mine, flashing early caution signs of what lies ahead for markets. Spreads there have begun to widen with the lowest-rated high-yield bonds showing more stress.  

Economic Data is Positive, but Sentiment is Not: Underlying economic activity remains solid and the Weekly Economic Index is trending positively. But, rising uncertainty, shifting market sentiment, and tightening financial conditions may weaken it. The top third of earners are losing confidence in the economy, and consumer discretionary spending is slowing. The percentage of consumers worried about losing their jobs is now at levels typically seen during recessions. Add to that the fact that the Trade Policy Uncertainty Index has surged to levels not seen since the early 1980s, making it harder for businesses to plan, which could weigh on future growth and investment.

Top Headlines: We’re reading about Walmart’s ask of Chinese manufacturers to absorb the full cost of recent tariff hikes; high schools investing in new technical-education facilities to prepare students for hands-on work with wood, metals, and machinery; the markets where apartment demand outpaced supply last year; and why Pepsi purchased Poppi.

Related resources:

• Retail: Walmart asks Chinese suppliers for major price cuts on tariffs
• Manufacturing: Schools reviving shop class offer a hedge against an AI future
• Commercial real estate: Large markets where apartment demand far outpaced new supply in 2024
• Consumer: Why Pepsi’s parent company agreed to acquire functional soda maker, Poppi, for nearly $2 billion

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