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Market Update: March 10, 2025

In today's complex financial landscape, staying informed is key to making sound investment decisions and creating a secure financial future. Our job at DFG is to help our clients navigate the changing financial landscape within the context of their personal financial plan in a way that brings them confidence, comfort, and security. Toward this goal, below is the latest Market Update issued by Daken Vanderburg, CFA, the Chief Investment Officer of MassMutual Wealth Management, which provides commentary on the current state of the economy and explores the impact of tariffs on the markets.As always, the Davis Financial Group Team wants to hear from you – please share your thoughts, questions, and ideas with us at info@davisfinancialgroup.com or give us a call at (413) 584-3098. CRN202803-8317719

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Your Capital Markets Snapshot: U.S. Economic Growth is Showing Signs of Slowing

U.S. economic growth is showing signs of slowing, with key indicators like retail sales and personal spending surprising to the downside. This slowdown comes amid heightened policy uncertainty, particularly around tariffs and government funding. Markets have reacted defensively, with sectors like health care and consumer staples leading, while technology and consumer discretionary sectors lag. The S&P 500 is negative for the year, as markets continue to consolidate after the last two years of over 20% growth. International equities continue to outperform their US peers, highlighting the importance of diversification in a portfolio context. Additionally, bond markets have seen support as Treasury yields moved lower, reflecting renewed market expectations of multiple potential Fed rate cuts this year. Despite these challenges, the U.S. economy started the year from a position of strength, and there are no immediate concerns of a looming recession.

Your Capital Markets Snapshot: Equity Markets Experienced Notable Volatility

Last week, equity markets experienced notable volatility. The S&P 500 briefly erased its year-to-date gains, driven by growth concerns, trade uncertainty, and deteriorating consumer confidence. Despite these challenges, there are still supporting factors such as positive economic growth, a steady labor market, and strong spending on AI. The Magnificent 7, which had previously led the market, entered correction territory, contributing to the broader index's sideways movement over the past three months. Diversification remains critical, as leadership has shifted away from U.S. large-cap and tech stocks. Overall, while market volatility may persist, the recipe for continued economic expansion and a continuation of the current bull market in stocks remain intact.

Your Capital Markets Snapshot: Markets Displayed a Combination of Optimism and Caution

Last week was mixed for capital markets. US equity markets initially crept upward, with the S&P 500 and Nasdaq posting new all-time highs in the first half of the week. However, weaker than expected retail spending data led to all three major US indices posting losses for the week. Two trends we are monitoring to begin this year include: 1.) U.S. mega-cap technology stocks are lagging the broader market after their recent dominance in 2023 and 2024; and 2.) International equities, largely driven by European markets, are outperforming their U.S. counterparts. Despite some weak economic releases, Treasury yields continue to stabilize after rising for much of September 2024 – January 2025. Last week rates slightly eased falling between 0-8 basis points. Overall, markets displayed a combination of optimism and caution, highlighting the importance of diversification across sectors and regions.

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Your Capital Markets Snapshot: Inflation Data Came In Hotter than Expected

Last week, inflation data came in hotter than expected, with the Consumer Price Index (CPI) rising 0.5% month-over- month and 3% year-over-year. The Federal Reserve continues to suggest patience in their approach to cutting rates as inflation stubbornly remains above their 2% target. Expectations for multiple rates cuts this year continue to moderate. International equity markets outperformed their U.S. counterparts, fueled by strong weeks from the German DAX and Stoxx 600. Year to date, both international developed and emerging markets are outpacing U.S. equities of all sizes. Despite the poor inflation readings, the S&P 500 and NASDAQ recorded weekly gains, nearing their all-time highs. So far this year, markets have proven resilient, especially in the face of new tariff announcements and warmer inflation data.

Your Capital Markets Snapshot: The U.S. Economy Continues to Show Solid Growth

The U.S. economy continues to show solid growth with Q4 2024 real GDP growing at an annualized rate of 2.3%, just below expectations of 2.5%. US GDP growth was driven primarily by consumer spending, which increased 4.2% annually (its highest level since Q1 2023). The Federal Reserve held interest rates steady, maintaining a patient approach amid solid economic growth, a healthy labor market, and stubborn inflation trends. Earnings season kicked off with strong results from companies like Apple, Microsoft, and Meta, although Tesla missed estimates. Technology stocks, particularly Nvidia and other chip manufacturers, experienced volatility following Monday’s news from Chinese AI startup DeepSeek that it developed an AI program comparable to OpenAI’s ChatGPT using a fraction of the development costs and computational resources. Much of the sector rebounded later in the week, as the news from DeepSeek was spun as a positive for increasing development and adoption of AI-related technologies. Overall, the S&P 500 is on track for strong earnings growth, with expectations for continued momentum into 2025.

Your Capital Markets Snapshot: Stocks Maintained their Bullish Momentum

Last week, stocks maintained their bullish momentum, driven by a pro-growth fiscal policy shift from the incoming Trump administration. The S&P 500 reached a fresh all-time high (ATH) during the week, while the Dow and NASDAQ also recorded gains but remain below their previous ATHs. Bitcoin prices also hit a new ATH above $109,000 on Inauguration Day before trending down and ending the week essentially flat, fueled by optimism over the administration's crypto- friendly stance. Additionally, Meta Platforms announced a significant increase in AI infrastructure investment, which appeared to reflect positively on its stock price. Despite these positives, there are still concerns about potential inflationary pressures and the trajectory of Treasury yields, particularly longer-term yields. Overall, the market sentiment remained positive, supported by healthy economic indicators and earnings growth.

Your Capital Markets Snapshot: A Strong Positive Week for Most Asset Classes

Last week was a strong positive week for most asset classes, with particularly strong returns for US equities and Bitcoin. The benchmark 10-year Treasury yield briefly reached a 14-month high of 4.8% before retreating due to encouraging inflation data, with core CPI unexpectedly edging lower. Despite strong economic growth and policy uncertainty, the Federal Reserve showed no urgency to cut rates further, leading investors to scale back their expectations for rate cuts this year. The start of the earnings season highlighted the influence of corporate profits on stock market performance, with banks reporting strong results. Overall, the markets saw a mix of volatility and positive momentum, driven by economic and corporate strength.

Your Capital Markets Snapshot: Markets Experienced a Mix of Positive Economic Data

Last week, markets experienced a mix of positive economic data and political developments. Labor market data exceeded expectations, with significant job gains and declining unemployment rates. However, this strong economic performance led to a reassessment of the likelihood of central-bank rate cuts in 2024, as more participants are expecting a pause in cuts and expectations for only one rate cut in the back half of the year are increasing. Changes to interest rate expectations and the strong economic data led government bond yields to rise and stock markets to decline. Despite these changes, the overall economic fundamentals remain resilient, evidenced by strong job gains, decreasing unemployment, and positive economic growth.

Your Capital Markets Snapshot: A Mixed Week for Equity Markets

It was a mixed week for equity markets as the S&P snapped a three-week streak of gains and the Nasdaq posted a new all time high supported by asset flows into many of the mega-cap tech names. As the end of the year draws near, US equities are on pace for back- to-back years of over 20% gains for the first time since 1999. Tailwinds for this year’s performance include solid economic growth, falling inflation, and the start of easing monetary policies by the Federal Reserve. However, last week’s inflation release marked the second month in a row the CPI came in above the previous month’s reading. While the last week’s reading was in line with expectations, it may be a sign inflation reduction is stalling, which could increase uncertainty regarding future central bank actions. With the Federal Reserve meeting this week, expectations remain high for another 25-basis points rate cut, but expectations for rate cuts by the end of 2025 are moderating, current expectations suggest a total of 75 bps down from 175 bps expected in late September.

Your Capital Markets Snapshot: U.S. Equities Continued their Recent Bullish Momentum

Last week, U.S. equities continued their recent bullish momentum, with the S&P 500 and Nasdaq both reaching new all-time highs. Economic data supported this positive trend, with the U.S. labor market showing resilience as nonfarm payrolls exceeded expectations, adding 227,000 jobs. The unemployment rate ticked up slightly to 4.2% but remains below long-term averages. Additionally, the ISM manufacturing and services PMI indicated expansion, suggesting ongoing economic growth. The Atlanta Fed's GDPNow model was revised higher to 3.3%, reflecting strong economic data. Despite potential for policy uncertainties from the next regime and market volatility, the overall economic backdrop remains strong, providing opportunities for investors.

Your Capital Markets Snapshot: U.S. Stock Indexes Continued their Positive Momentum

Last week, U.S. stock indexes continued their positive momentum. The S&P 500 and Dow both hit new record levels, while the NASDAQ remained slightly below its recent high. Additionally, U.S. stock indexes saw significant gains in November, marking the sixth positive month out of the past seven. U.S. government bond yields fell sharply following the announcement of Scott Bessent as the next Treasury secretary. While inflation progress appears to have stalled, with the Personal Consumption Expenditures Index rising slightly in October, the Federal Reserve expressed confidence in easing price pressures and a strong labor market. Looking ahead, analysts expect robust fourth-quarter earnings growth for S&P 500 companies.

Your Capital Markets Snapshot: S&P 500 Gains 1.7% Amid Mixed Tech Performance

Last week, bullish market sentiment supported investors “buying the dip” throughout the week as buying pressures helped push the S&P 500 up 1.7%, despite dips throughout the week. Nvidia's earnings report showed strong results. However, the stock traded down for the second quarter in a row following a positive post-earnings release, possibly indicating high expectations are weighing on investor enthusiasm. The technology sector's performance was mixed, with semiconductors underperforming due to concerns about tighter export restrictions to China. Overall, optimism about potential positive impacts from the next administration’s policy changes and a strong U.S. dollar contributed are influencing market psychology and contributed to the market's upward momentum.

Your Capital Markets Snapshot: Equity Markets Experienced Notable Pullback

Last week, the equity markets experienced a notable pullback after a strong post-election rally. Major indices like the S&P 500, Nasdaq, and Russell 2000 all posted significant losses, with the Russell 2000 down over 4%. This decline was driven by rising bond yields, which reached multi-month highs, and comments from Fed Chair Jerome Powell suggesting a more cautious approach to rate cuts. Additionally, there was a noticeable sector rotation as investors moved out of Information Technology and into more cyclical sectors like Financials, Industrials, and Energy. Despite the pullback, the overall market remains up for the year, supported by strong economic fundamentals and resilient consumer spending.

Your Capital Markets Snapshot: Equity Markets Experienced Significant Gains

Last week, the equity markets experienced significant gains, with the S&P 500 posting its largest weekly gain of the year. This surge was largely driven by positive reactions to the U.S. election results, which were seen as favorable for corporate earnings. The Federal Reserve's decision to cut interest rates by 25 basis points also played a role, although the Fed maintained a cautious stance on inflation. Bond yields saw notable fluctuations, initially spiking mid-week before settling down. Overall, the markets were buoyed by strong economic data and investor sentiment, leading to record highs for the major indices.

Your Capital Markets Snapshot: Equity Markets Continued to Slide

Equity markets continued to slide for the second week, with the S&P 500 and NASDAQ posting weekly losses of over 1%, while the Dow's decline was fractional. The volatility was driven by concerns over the growth potential of technology stocks and artificial intelligence as well as increasing uncertainty in the outcome of Tuesday’s presidential election. Despite the volatility, earnings momentum remained positive, with third- quarter earnings for S&P 500 companies on track to rise by an average of 5.1%. On the bond market side, U.S. government bond yields continued to rise, marking the sixth increase in the past seven weeks with the yield on the 10-year note jumping 12 bps from the prior week to close at 4.37%.

Your Capital Markets Snapshot: Markets Experienced Notable Movements

Last week was eventful week as markets experienced notable movements driven by various factors. Rising bond yields contributed to interrupting the S&P 500’s six-week streak of gains, as stronger-than-expected economic data continue to temper expectations surrounding rate cuts. The US stock market saw mixed results as the S&P 500 and Dow fell; while the NASDAQ posted its seventh consecutive weekly gain, due to the tech sector being one of the only sectors with positive growth for the week. The yield on the 10-year U.S. Treasury note climbed, reflecting investor caution about inflationary pressures and future interest-rate cuts. Despite the down week and rising rates, the U.S. economy continues to appear resilient as initial jobless claims have continued to come in below estimates, GDP growth expectations remain around 3% for 2024, and recession expectations continue to decline.

Your Capital Markets Snapshot: S&P 500 and Dow Continued to Reach Record Highs

Last week, the S&P 500 and Dow continued to reach record highs, driven by strong quarterly earnings and economic data. The September Retail Sales report exceeded expectations, boosting the SPX by 0.8% for the week. Additionally, the semiconductor sector saw mixed results, with ASML's cautious guidance causing a dip, while Taiwan Semiconductor's robust results lifted the sector. The Russell 2000 also performed well, setting a fresh two-year high. Overall, the market sentiment remains bullish, supported by positive economic indicators and strong earnings.

Your Capital Markets Snapshot: Equity Markets Trended Upwards

Last week, equity markets trended upwards, with the S&P 500 continuing to reach record highs, driven by confidence in a strong U.S. economy. Despite rising oil prices, yields, and geopolitical tensions, stocks rebounded after initially falling to start the week. The Consumer Price Index (CPI) report came in slightly above expectations, and Initial Jobless Claims hit a one-year high but may be the temporary result of impacts from Hurricane Helene and the Boeing strike. Bond yields rose, with the 10-year Treasury yield increasing to 4.08% from 3.98%, as markets begin to cool down on expectations of continued aggressive rate cuts from the Federal Reserve and react to strong economic data, such as the Atlanta Fed's Q3 GDP forecast being revised up to 3.2%.

Your Capital Markets Snapshot: Markets Bouncing Around But Trending Down

An eventful week last week led to markets bouncing around but trending down for most of the week, resulting from increasing tensions in the Middle East and the East Coast port strike. After the strike tentatively ended late Thursday and a strong jobs report on Friday, we saw markets recover and post modest gains for the week. While the Federal Reserve seeks to balance its dual mandates of stable prices and full employment, last week may have some wondering if inflation concerns are truly in the rearview mirror as oil prices increased following Iran’s missile attack as well as US labor strikes becoming more common and leading to potentially higher wages. We will get inflation data next week that can help answer some of these questions, but for now the US economy appears to be on firm footing after posting the strongest job gains in the past six months paired with upward revisions to July and August’s job report numbers.

Your Capital Markets Snapshot: Equity Markets Saw Modest Gains

Last week, the equity markets saw modest gains, with the three major US indices rising between 0.6% to 1.0% due to positive economic data and a series of stimulus measures launched by the Chinese government. The Chinese stimulus measures led to significant gains in Chinese stocks, which in turn benefited several U.S. industries, such as materials and industrials. Additionally, the U.S. Federal Reserve's preferred inflation gauge showed further easing of price pressures, contributing to the positive market sentiment. Despite the growth in equity markets, it was another flat week for US fixed income markets while international bonds saw a modest 0.5% gain.

Your Capital Markets Snapshot: Federal Reserve's Cut Interest Rates

Last week, the Federal Reserve's cut interest rates by 50 basis points (bps) instead of the typical 25 bps, bringing the Federal Funds Rate to a range of 4.75%-5.00%. Chairman Powell explained they believed inflation will continue to decrease towards their 2% target and signs of a softening labor market supported their decision to begin cutting rates. While they explained more rate cuts would follow, they would not making timing/size commitments and explained they would closely monitor incoming data as they work to reduce their policy rate to a more neutral level. This decision was well-received by the equity markets, leading to new all-time highs for the S&P 500 and Dow Jones Industrial Average. The NASDAQ also saw a substantial increase, jumping 2.5% on Thursday following the Fed's announcement, but is still shy of its previous ATH.

Your Capital Markets Snapshot: Capital Markets Experienced Increased Volatility

Last week, the capital markets experienced increased volatility due to concerns about a slowing economy and persistent inflation. Despite these challenges, stocks have shown strong gains and are near record highs. The latest inflation data revealed a month-over-month increase in core CPI, indicating that the fight against inflation is not yet over. However, the broader trend shows that inflation is on a downtrend, with core CPI levels returning to those seen in early 2021. The Federal Reserve is expected to start an extended phase of rate cuts at its upcoming meeting, which has brightened the outlook for monetary policy. Investors remain focused on inflation and labor market data and their implications for future Fed interest-rate moves.

Your Capital Markets Snapshot: U.S. Labor Market Was a Key Focus

Last week, the U.S. labor market was a key focus for investors, with the August nonfarm jobs report confirming signs of a weakening labor market. The unemployment rate dropped from 4.3% to 4.2%, but new jobs added showed a clear softening trend. Markets reacted to the soft jobs report with a continued sell-off, leading to a 4% decline in the S&P 500 from recent highs. The Federal Reserve's potential interest rate cuts became a focal point, with the probability of a 0.50% rate cut increasing due to the softening economic data. Treasury yields moved lower, and the yield curve un-inverted, reflecting the weaker labor market data and potential Fed rate cuts. Crude oil prices hit new lows for the year, driven by fears of a demand slowdown globally, particularly in China. Overall, markets have taken on a more defensive posture, with sectors like consumer staples and utilities outperforming amid economic uncertainty.

Your Capital Markets Snapshot: Major Indices Were Mostly Flat

Last week, the major indices were mostly flat or slightly down. Despite the volatility shock to start the month, all three indices managed to close August with slight positive gains. Economic data continues to support the potential of the Federal Reserve achieving a soft landing; last week, we saw an upward revision of Q2 GDP growth, the PCE report indicated moderating inflation, and initial unemployment claims came in below estimates. Following their recent interest rate cut, Eurozone countries continue to see inflation decrease as they reported inflation hitting its lowest level in nearly 3 years. Despite all this positive news, the S&P 500 ended the week just shy of a new all-time high while gold continued to push higher, which could be a sign of continued uncertainty in the short-term.

Your Capital Markets Snapshot: Capital Markets Were Largely in a Holding Pattern

Last week, the capital markets were largely in a holding pattern, awaiting insights from the Federal Reserve's annual symposium in Jackson Hole, Wyoming. The much-anticipated speech by Fed Chair Powell on Friday provided some key takeaways for investors, including the expectation that interest-rate cuts will commence in September. The Fed held its policy rate steady for over a year, but recent commentary suggests sufficient progress has been made on inflation to warrant a shift in policy to focus on employment. The markets responded positively to Powell's dovish message, with stocks rallying and Treasury yields falling in anticipation of the upcoming rate cuts. However, the path to rate cuts may not be consistent, with cuts and pauses interspersed over the coming months as the Fed closely monitors future economic releases and seeks to avoid further deterioration of labor markets and economic slowdown.

Your Capital Markets Snapshot: Stocks Posted One of Their Largest Weekly Gains

Stocks posted one of their largest weekly gains of the year following the pullback in recent weeks. Last week’s rally was driven by encouraging economic data, including continued reports of moderating inflation and a positive surprise on retail sales. Initial jobless claims came in below expectations for the second week in a row, which may suggest the recent increase in the unemployment rate could be due to an increasing labor pool size and not increasing layoffs. While data continues to suggest slowing growth of the economy, last week’s releases indicated the U.S. economy remains healthy and helped ease recession fears. As the September meeting draws nearer, expectations remain high for a potential interest rate cut by the Federal Reserve, with many hoping for a signal during Fed Chair Powell's speech this week at the Jackson Hole Symposium.

Your Capital Markets Snapshot: Mixed Performance Across Asset Classes

The first week of August saw mixed performance across asset classes and ended with a two-day selloff in the equity markets. Multiple data points suggest a softening labor market (nonfarm payrolls well below expectations, increasing unemployment rate triggered two recession indicators, above expectation initial jobless claims, and above expectation number of job openings) and a downward revision to GDP growth helped contribute to the downside volatility. Resulting from the increased uncertainty, we saw the VIX Index hit a one-year high breaking above 29 on Friday. While not guaranteed to repeat, historically large VIX spikes have signaled a near-term market bottom in stocks.

Your Capital Markets Snapshot: July Has Been a Month for Rotations

July has been a month for rotations as we have seen presidential candidate polling swing following the attempted shooting of former President Trump and subsequently President Biden’s exit of the 2024 presidential campaign. Further, we have seen value and small cap stocks begin and sustain short-term outperformance of their growth and large cap peers. With Vice President Harris poised as the favored Democratic nominee to take on former President Trump, election odds are looking like more of a coin flip than they were prior to Biden’s bowing out. This political uncertainty can be expected to add uncertainty to market outlooks ahead of the November election. This is to be expected as history has shown market uncertainty tends to increase leading into elections and subsequently decrease back to normal levels.

Your Capital Markets Snapshot: Stocks Swung Back and Forth

It was a wild week as stocks swung back and forth beginning with an early-week rally after the attempted shooting of Donald Trump followed by weakness in tech stocks after the week ended with a global IT outage. For a second week in a row, we saw small cap stocks outperform their large cap peers and value outperform growth. Expectations remain high for an upcoming rate cut by the Federal Reserve in September as economic data showed signs of consumer strength, with retail sales numbers surprised to the upside, and slack in the labor market, as initial and continuing jobless claims surprised to the upside.

Your Capital Markets Snapshot: Large Cap Equities Delivered Impressive Performance

Despite a short week and economic data showing signs of a slowing economy, large cap equities delivered impressiveperformance, primarily fueled by the tech sector. Both the S&P 500 and Nasdaq closed the week at record highs as did the tech giants AAPL, AMZN, GOOGL, META, and MSFT. While monthly job growth came in above estimates, the prior two months were revised down. The unemployment rate ticked up to 4.1%, its highest level since November 2021, with reported job openings exceeding expectations. Based on ISM data, the Manufacturing sector reported a contraction for the third consecutive month (and 19 of the last 20), while the Services/non-Manufacturing sector fell significantly from the prior month to its lowest level in 4 years and reported a contraction. Given signs of a softening economy, expectations for an upcoming Fed rate cut in September increased.

Your Capital Markets Snapshot: Equity Markets Experienced Mixed Week

The equity markets had a mixed week to close out the first half of the year; however, on a year-to-date basis, all three major equity indices have shown impressive gains. Economic news last week showed inflation continues to trend lower as the core Personal Consumption Expenditure (PCE) Index for May was reported in line with expectations with an annual gain at 2.6%.

Your Capital Markets Snapshot: Equity Markets Constrained Last Week

Mixed economic data kept the equity markets constrained last week moving into the final days of the second quarter. May retail sales figure came in below expectations with a gain of only 0.1%, while April’s retail sales figure was revised to a decline of 0.2%.

Your Capital Markets Snapshot: Key Inflation Data Below Expectations Last Week

Key inflation data came in below expectations last week, helping the Federal Reserve move towards their goal of lower inflation. The headline Consumer Price Indec (CPI) came in at an annualized rate of 3.3%, below economists’ estimates of 3.4%.

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