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The list of things to watch in the U.S. continues to grow: the implementation of new tariffs; slowing U.S. growth; inflation concerns; a potential government shutdown; and a wild ride for the 10-year U.S. Treasury yield among them. Here are the top things for global investors to keep an eye on in March.
The fear of tariff wars has been negatively impacting U.S. consumer sentiment and spending. On March 4, new U.S. tariffs began on goods from Mexico and Canada (although some of these were subsequently “paused” until April), and additional tariffs began on China. We also started getting news about retaliatory tariffs. However, if we were to see a quick end to the nascent tariff wars, I believe we would likely see a fast rebound in sentiment and spending. In the near term. I expect them to weigh on U.S. stocks, just as they did in 2018.
More signs are appearing of a “growth scare.” It’s not just a large drop in consumer confidence –we’re seeing signs of a slowdown in a variety of economic data:
Yes, the Atlanta Fed is now predicting an actual drop in GDP growth for the first quarter. You may recall that two consecutive quarters of negative growth makes a recession. Now the first quarter is far from over, so the Atlanta Fed GDPNow measure could easily swing back into positive growth territory with additional data points. And any downturn in economic growth could be very short-lived, as it seems to largely be a reaction to concerns about tariff wars.
We’ll want to follow the data closely to ensure the U.S. economy isn’t deteriorating too quickly – that starts this week with the U.S. Employment Situation Report for February, as well as anecdotal information from the Federal Reserve Beige Book to be released this week.
There is a lot of concern that there will be a rebound in U.S. inflation. We see it in U.S. consumer inflation expectations, with one-year ahead expectations now at a very high 4.3%.5 And we see it in market-based inflation expectations; the five-year breakeven inflation rate has climbed from a low of 1.86% on Sept. 10, 2024, to 2.61% on Feb. 28, 2025.6
While the most recent Personal Consumption Expenditures (PCE) print was rather tame, the prices paid sub-index of the ISM U.S. Manufacturing PMI survey rose from 54.9 last month to 62.4, a big jump that was well above expectations.7 As with the University of Michigan Survey of Consumers, this is not what we want to see – a drop in growth and an increase in prices. As I said last week, it raises concerns about the potential for stagflation.
We’ll want to follow data releases closely for signs of a resurgence in inflation. I’m most focused on average hourly earnings, which was released Friday, March 7, as part of the U.S. Employment Situation Report.
Thus far, the Federal Reserve (Fed) has indicated that it is more concerned about inflationary risks than risks to growth. This is rather typical for the Fed. It seems that Federal Open Market Committee members are more worried about avoiding becoming the next Arthur Burns than the next Herbert Hoover.
However, I think the Fed’s focus would change if we see more signs of economic deterioration. If this is not accompanied by a rebound in inflation – in other words, the stagflationary environment we all fear – then I expect it will bring us closer to more easing. However, it will be important to pay attention to the Fed’s messaging on this to see how its perceived risks are evolving.
When U.S. Treasury Secretary Scott Bessent said that the Trump administration would focus not on cajoling the Fed into cutting rates but instead bringing down the 10-year U.S. Treasury yield, I didn’t think it would happen so quickly – nor did I think it would be driven by expectations of diminishing growth.
The 10-year U.S. Treasury yield has been on a wild ride in recent weeks, peaking at 4.79% on Jan. 14 and falling to 4.21% on Feb. 28.8 Last week it fell even further. Now we do have to recognize that a drop in the 10-year yield isn’t always a good sign. A decomposition of the 10-year U.S. Treasury yield – looking at the various components that influence it – indicates that the market expects more inflation and less growth given the decline in the real yield. That combination has historically been negative for U.S. stocks. We’ll want to tread carefully in the near term.
Kristina Hooper is Chief Global Market Strategist at Invesco. This article first appeared in the Invesco Insights – Markets and Economy page.
Notes
1. Source: U.S. Bureau of Economic Analysis, Feb. 28, 2025.
2. Source: S&P Global, as Feb. 21, 2025.
3. Source: Institute for Supply Management, March 3, 2025.
4. Source: Atlanta Fed GDPNow, as of Feb. 19, 2025, and Feb. 28, 2025.
5. Source: University of Michigan Survey of Consumers, Feb. 21, 2025.
6. Source: Federal Reserve Bank of St. Louis via FRED, as of Feb. 28, 2025.
7. Source: Institute for Supply Management, March 3, 2025.
8. Source: Bloomberg, as of Feb. 28, 2025.
Disclaimer
© 2025 by Invesco Canada. Reprinted with permission.
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The opinions referenced above are those of the author as of March 3, 2025. These comments should not be construed as recommendations, but as an illustration of broader themes. This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
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This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
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