Week of March 24, 2025

Key Points for the Week

• Stocks managed to finish higher last week, but the headline risk and volatility remain.
• Not all corrections turn into bear markets, something that is important to remember.
• The Fed raised inflation expectations and lowered growth expectations.
• The Fed did not change the path of future interest rates, which markets considered a dovish outcome given higher inflation expectations.

Current Trends & News is a weekly financial recap curated by SPC Financial®’s team of wealth management and tax-integrated advisors.* We monitor and explore the intricacies of the financial world and share insights into market developments.

Economic Update

Last week, the Federal Reserve (Fed) left the federal funds rate unchanged, and Fed Chair Jerome Powell soothed markets. He explained that conditions in the labor market were broadly in balance and inflation had eased significantly over the past two years. Overall, the possibility of recession, while rising, remained low.

Markets rallied following his comments.

The economic outlook for 2025

The Fed’s current median forecast for economic growth in 2025 is 1.7 percent, a bit lower than it was in December. In addition, the Fed’s current median estimate for inflation is 2.7 percent, a bit higher than in December. While he was reassuring, Powell explained there is a lot of uncertainty about the economic outlook in the United States.

“Looking ahead, the new administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation. It is the net effect of these policy changes that will matter for the economy and for the path of all monetary policy. While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their effects on the economic outlook is high. As we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves.”

Jerome Powell, Federal Reserve Chairman

Consumer spending and the wealth effect

Powell also said that it remains to be seen how consumer and business spending and investment will respond to heightened uncertainty about the economic outlook. It is an important point because of the “wealth effect.”

The wealth effect is a theory in behavioral economics. It holds that people spend more when the stock market is rising and the value of their assets is growing. Conversely, people spend less when the stock market is falling and the value of their assets is declining. It is difficult to quantify the effect.

“Estimates of the ‘wealth effect’ – the amount that rising or falling stocks can support or hurt consumer activity – vary wildly. One academic study in 2019 suggested that a dollar increase in stock market wealth boosted American spending by about three cents. [A large financial-services firm] suggests that the pass-through has risen significantly in recent years, coming up with an extraordinary figure of 24 cents. Whatever the true number, a declining stock market matters for the broader economy.”

Mike Bird, The Economist

Last week, major U.S. stock indices finished higher, while yields on most maturities of U.S. Treasuries moved lower.

This Week in the Markets

Last week, we discussed how the S&P 500 officially moved into a correction (down more than 10% from the February 19th peak). We noted then that most years (even some of the best years) see volatility, with many of those years seeing a 10% correction at some point in the year.

Another angle on the correction though is how quickly it happened. In fact, it took only 16 trading days to achieve this correction.

We found six other corrections off an all-time high that took place in less than one calendar month (or about 21 trading days) and the good news is quick snapbacks are quite common. In fact, the S&P 500 has never been lower three and six months later, with an average return six months later of an extremely impressive 14.7%.

The buyers showed up a week ago Friday and last Monday, as both days saw more than 90% of the components of the S&P 500 move higher. This is extremely rare but could be a clue that a major low is in place or trying to form.

The last time we saw this was in early October 2022, right as that bear market was ending. The table below shows that we have seen strong returns after previous buying thrusts, with the S&P 500 higher six months later 10 out of 11 times and up nearly 11% on average. This coupled with the data from above suggests the potential for better-than-expected returns over the next six months, which might surprise many investors who are positioned for the worst.

We found 13 official bear markets (down 20% from recent highs) going back to World War II, with many asking whether this could become number 14.

Only 13 of the previous 39 corrections eventually turned into bear markets. Or as we like to say, all bear markets started as a correction, but not all corrections turn into a bear market.

The Federal Reserve

The Federal Reserve concluded its latest policy meeting Wednesday and opted to keep the fed funds rate unchanged, leaving it at a target range of 4.25-4.5%. This was not unexpected, but all eyes were on the Fed’s “dot plot” (expected path of interest rates) and the rest of its Summary of Economic Projections (SEP). The SEP is updated every three months and contains individual member estimates of the fed funds rate over the next few years, as well as estimates of key economic variables (unemployment rate, inflation, GDP growth). The last update was in December and was viewed hawkish. This time around, there was a big question around what members would do with their inflation projection, especially in the face of tariffs, and how they would shift their policy rate projections. It was interesting with members projecting higher inflation, higher unemployment, and slower growth:

• Their 2025 core PCE projection rose from 2.5% to 2.8%
• The 2025 unemployment rate projection rose from 4.3% to 4.4%
• Real GDP projection for 2025 fell from 2.1% to 1.7%

To be clear, these levels are nothing close to stagflation, even if the direction of travel was akin (at a much smaller scale) to stagflation, with inflation expectations moving further away from their inflation target of 2%. In addition, the median member projected a policy rate of 3.9% in 2025, implying two rate cuts this year, unchanged from December. In fact, their core inflation projection for 2025 has decidedly moved away from their target over the past year and half, even as their policy rate projection has stayed put. By itself, this is quite dovish, and it is not a big surprise why equity markets rallied and bonds gained as interest rates pulled back.

“Transitory” Makes an Unexpected Comeback

It was three years ago at the March 2022 Fed meeting that Fed Chair Jerome Powell said inflation was likely transitory. Of course, Powell, and the Fed, have been haunted by that phrase ever since. However, “transitory” is back, at least going by the dot plot.

Even as Fed members increase the 2025 core PCE projection to 2.8%, they left the projection for 2026 at 2.2% and for 2027 at 2%. In other words, they think tariffs may simply cause a one-time shift upwards in the price level, boosting inflation temporarily, after which inflation will revert to the expected trend (although price levels will be higher). There is some irony that a lot of people in the current administration who are embracing the transitory narrative around tariffs are some of the same people who mocked Powell and Co for saying inflation was transitory a few years ago.

The transitory narrative kind of explains why the median policy rate projection did not shift. Why move policy rate projections if higher inflation is expected to be transitory? Powell also mentioned that long-term inflation expectations remain stable, downplaying the popular University of Michigan survey, which showed 1-year inflation expectations surging to 4.9% and 5-year ahead expectations jumping to 3.9%, the highest we have seen over the past decade. This is likely colored by politics (though not all of it), and Powell was quick to dismiss it as an outlier.

The Fed Is Not in a Hurry to Cut, Amid a Lot of Uncertainty

Powell: “I don’t know anyone who is confident of their forecast.”

Powell rationalized the apparent dovishness of the dot plot by saying the risk of slower growth balances out the risk of higher inflation. However, he said there is a lot of uncertainty here, and the dot plot illustrated this quite nicely.

The median dot, which is where the projections come from, hides a lot of varied thinking across Fed members. Back in December, four members (out of nineteen) projected less than one cut in 2025, with three projecting one cut and one projecting none. In March, eight members now project less than two cuts, with four projecting one cut and four projecting none. On the other end, back in December, five members projected three or more cuts in 2025. That has fallen to just two members now.

Fed members also put out their expectations for uncertainty and risks around economic variables like inflation and unemployment, assessing whether it was lower, broadly similar, or higher. This got a lot of play in December, as there was a big jump in members who viewed uncertainty and risks around inflation to be higher. Even more members think this as of March.

• 17 of 19 members now say inflation uncertainty is higher, versus 14 in December
• 18 members say inflation risks are higher, versus 15 in December

At the same time, members are a lot more worried about a slowing economy and rising unemployment.

• 16 of 19 members say uncertainty about the unemployment rate is higher, versus just 8 in December
• 17 members say risks to the unemployment rate are higher, versus 7 in December

Policy rates are clearly restrictive. The policy rate is 4.4% right now, well above the “neutral” rate of 3% (the rate that is neither too accommodative nor too tight). Under normal circumstances, they would likely be easing rates already, especially since they have repeatedly made clear that they want to hold on to labor market gains, even as the inflation outlook looks good. Powell once again noted that the labor market is not a source of inflationary pressure, which is important because that is usually where the Fed can apply pressure to rein in inflation.

However, Powell’s been explicit that Trump administration policies across four dimensions have created a lot of uncertainty for them. Tariffs are the main cause, but also immigration, fiscal policy, and deregulation. Tariffs have created enormous uncertainty about short-run inflation, preventing them from easing rates further. Powell was clear:

“We now have inflation coming from an exogenous source.”

On the other hand, there’s uncertainty around growth and employment too. For now, the hard data suggests the economy is doing fine, but sentiment is weak (though that does not mean it has to translate to a weaker economy). At the same time, hiring is clearly weak, with the hire rate running close to 2013 levels—by no means terrible, but much lower than it was in 2018-2019 or even 2022-2024. The good news is that the unemployment rate remains low because layoffs are low. This balance has held for 6-8 months now, but there’s uncertainty around whether that continues, or breaks one way or the other. It is an important question. Do hires pick up from here, or do layoffs increase?

All this means the Fed is on hold, as they maintain that they are not in a hurry to cut rates. They are going to wait for more data to come in and then react to it. This is a big difference from last year. The unemployment rate climbed from 3.9% to 4.2% from April to July, which was still historically low. But the Fed decided to “go big” with a 0.5%-point cut in September to preempt further weakness. Contrast that to today. They are essentially going to wait until things really break before acting. In fact, Powell admitted that members were uncertain and as a result inertia took over, and most members stayed in place with respect to their rate cut projections.

If You Lose Your Wallet, Do You Expect It to Be Returned?

Here is some good news from the 2025 World Happiness Report: “People are too pessimistic about the kindness of their communities.”

As usual, the 2025 World Happiness Report offered insights to the countries where citizens are happiest. Once again, Nordic nations dominated. The United States landed in 24th place.6 The countries where the happiest people live are:

1. Finland,
2. Denmark,
3. Iceland,
4. Sweden, and
5. Netherlands.

Where are people most benevolent?

The 2025 report also tracked a trend that surprised researchers during the Covid-19 years. In 2020, there was an upsurge in benevolent acts – people doing kind things for one another. Researchers theorized that helping others may have “…offset the negative effects felt by many of those whose lives were changed, endangered, and sometimes harmed during the pandemic.”

For the 2025 report, researchers asked how often people performed acts of kindness, specifically donating, volunteering, and helping strangers. The most benevolent countries varied, depending on the type of kindness.

• For donations, Indonesia, Myanmar, and Ukraine ranked first, second, and third.
• For volunteering, Indonesia, Liberia, and Kenya took top honors.
• For helping strangers, Jamaica, Liberia, and Trinidad & Tobago were the leaders.

The United States was 12th for donations, 15th for volunteering, and 12th for helping a stranger.

What about lost wallets?

The study also asked participants how likely it was that a lost wallet would be returned. They compared the data to studies where researchers “lose” wallets to see how often they are returned. Overall, expectations that wallets would be returned were far lower than actual returns.

For example, the actual return rate for lost wallets was 1.8 times higher – almost double – the average estimated return rate. In addition, wallets were more likely to be returned if they contained money.

The best place to lose your wallet is in a Nordic nation. These countries had both the highest expected and the highest actual rate of return for lost wallets.

A Reminder About Scams

Scams usually start with a phone call, email, text, or another form of communication. The person typically claims to be from an agency or organization you know – or one that sounds like it might benefit you, such as the National Sweepstakes Bureau or a lottery.

The person may know your name and address. They may give you their official title or an identification number. No matter how official they seem, you can be confident it is a scam if the person contacting you:

• Indicates there is a problem with your benefits.
• Asks you to pay to receive a prize.
• Suggests that paying will increase the chance of winning.
• Requests financial information, such as a bank account or credit card number.
• Pressures you to act immediately.
• Tells you to pay using a specific method, such as a gift card or cryptocurrency.

If this happens, remember that the Social Security Administration, the Internal Revenue Service, Medicare, and your bank do not call, email, or text to ask for money or personal information. They do not demand that you pay immediately, and they do not accept payment by gift card, prepaid debit card, cryptocurrency, or another untraceable form of money transfer.

When you suspect a scam:

• Hang up or close the message. Do not respond in any way.
• Remain calm.
• Think back over the call. Write down any personal information you may have inadvertently shared.
• Report the scam. Contact the Federal Trade Commission at ReportFraud.ftc.gov. You may also want to report the incident to your state’s attorney general or your local consumer protection agency.
• Share your knowledge. Talk with family, friends, and neighbors about your experience so they know what to look out for.

When you receive a digital message, no matter how official it seems, do not click on any links. Do not give or confirm any personal information, including your name, birth date, phone number, address, email address, place of birth, driver’s license, passport, or Social Security numbers, bank or other account numbers, and PIN numbers.

Being skeptical can keep you safe. Remove yourself from the situation. Do not share information. If you feel anxious and need to confirm that it was a scam, contact the organization using a method provided on their official website.

IRS Urges Taxpayers to Not Fall Prey to “Ghost Tax Preparers”

A common problem seen during tax season, “ghost preparers” pop up to encourage taxpayers to take advantage of tax credits and benefits for which they do not qualify. These preparers can charge a large percentage fee of the refund or even steal the entire tax refund. After the tax return is prepared, these “ghost preparers” can simply disappear, leaving well-meaning taxpayers to deal with the consequences.

While most tax professionals offer quality service, these ghost preparers and other unscrupulous preparers try to take advantage of people and should be avoided at all costs. The IRS encourages people to use a trusted tax professional, and IRS.gov has important information to help people choose a reputable, accredited practitioner.

Warning Signs to Look Out For

Most tax return preparers provide honest, high-quality service. But some may cause harm through fraud, identity theft and other scams. Paid preparers must sign and include a valid preparer tax identification number (PTIN) on every tax return. A ghost preparer is someone who does not sign tax returns they prepare. These unethical tax return preparers should be avoided, especially if they refuse to sign a complete paper tax return or digital form when filing electronically.

Taxpayers are also encouraged to check the tax preparer’s credentials and qualifications to make sure they are capable of assisting with the taxpayer’s needs. The IRS offers resources for taxpayers to educate themselves on types of preparers, representation rights, as well as a Directory of Federal Tax Return Preparers with Credentials and Select Qualifications to help choose which tax preparer is the best fit.

Some of the warning signs of a bad preparer include:

• Shady fees. Taxpayers should always ask about service fees. Shady tax preparers can ask for a cash-only payment without providing a receipt. They are also known to base their fees on a percentage of the taxpayer’s refund.
• False income. Untrustworthy tax preparers may also invent false income to try to get their clients more tax credits or claim fake deductions to boost the size of the refund.
• Wrong bank account. Taxpayers should also be wary of a tax preparer attempting to convince them to deposit the taxpayer’s refund in their bank account rather than the taxpayer’s account.

Good preparers ask to see all relevant documents like receipts, records, and tax forms. They also ask questions to determine the client’s total income, deductions, tax credits and other items. Taxpayers should never hire a preparer who e-files a tax return using a pay stub instead of a Form W-2. This is also against IRS e-file rules.

Report Fraudulent Activity and Scams

The IRS highly encourages people to report tax return preparers who deliberately prepare improper returns and any activity that promotes improper and abusive tax schemes.

To report an abusive tax scheme or a tax return preparer, people should use the online Form 14242 – Report Suspected Abusive Tax Promotions or Preparers, or mail or fax a completed Form 14242 and any supporting material to the IRS Lead Development Center in the Office of Promoter Investigations.

Mail: Internal Revenue Service Lead Development Center MS7900 1973 N. Rulon White Blvd. Ogden, UT 84404 Fax: 877-477-9135

Alternatively, taxpayers and tax practitioners may send the information to the IRS Whistleblower Office for possible monetary award.

Did you Know? This Week in History

March 27, 1939: “March Madness” Crowns its First Men’s NCAA Champion

The University of Oregon defeated The Ohio State University 46–33 on March 27, 1939 to win the first-ever NCAA men’s basketball tournament. "March Madness," as the tournament became known, has grown exponentially in size and popularity since 1939. By 2005, college basketball had become the most popular sporting event among gamblers, after the Super Bowl. Most of that betting takes place at tournament time, when Las Vegas, the internet and office pools around the country see action from sports enthusiasts and once-a-year gamblers alike.

For the first 12 years of the men’s tournament, only eight teams were invited to participate. That number grew steadily until a 65-team tournament format was unveiled in 2001. In 2011, the field expanded even further, allowing 68 teams to qualify for the "big dance." After four “play-in” games between, now known as the First Four, the tournament breaks into four regions of 16 teams. The winning teams from those regions comprise the Final Four, who meet in that year’s host city to decide the championship.

The NCAA held its first women’s basketball tournament in 1982. The women’s tournament started with 32 teams, expanding to 64 teams before the 1994 season. Today, the women’s format echoes the men’s, with play in four regions culminating in a Final Four held in a single location. The championship is played the day after the men’s, concluding the college basketball season.

Weekly Focus

“No act of kindness, no matter how small, is ever wasted.”

Aesop, Storyteller

”I have done the calculation, and your chances of winning the lottery are identical whether you play or not.”

Fran Lebowitz, Author

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Sources:

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