By Isabel Wang
Consumer confidence, personal spending and PCE will have to deliver this week for a stock market struggling to extend its relief rally
The U.S. stock market finally breathed a sign of relief last week, bouncing back from its sharp selloff after President Donald Trump’s ever-changing tariff plans sent shockwaves through financial markets earlier this month.
But investors still need to buckle up, as Wall Street’s roller-coaster ride is far from over. This week’s full slate of data releases could easily reignite volatility in a stock market already feeling uneasy about the economy, according to market analysts.
Stocks wrapped up a volatile week on Friday with the three major indexes managing to score modest weekly gains after Trump said there would be “flexibility” on his reciprocal tariff plans. The S&P 500 SPX gained 0.5% on the week, while the Dow Jones Industrial Average DJIA advanced 1.2% and the Nasdaq Composite COMP rose 0.2% in the same period, according to FactSet data.
Investors are eager to see if this week’s economic data will shed light on how tariff-related uncertainty and government layoffs have since impacted the health of the U.S. consumer – and more importantly, whether they will sustain the market’s relief rally or plunge stocks further into decline.
That has left Wall Street seeing Tuesday’s Consumer Confidence Index, surveyed by the Conference Board, as the next key event for the U.S. stock market. Economists polled by the Wall Street Journal expect U.S. consumer confidence to sink further to 95 in March, from 98.3 in the prior month. The decline would be the fourth in a row since the index hit a 16-month peak of 112.8 in November.
“We’re in a major policy-change environment and tariff policies haven’t come to fruition yet, so there’s noise going on and it’s not surprising that consumer confidence [for March] would again show that people are concerned,” said Arthur Laffer Jr., president of Laffer Tengler Investments. “You will see euphoria and then depression in the economic data, and then see the stock market going up and down, up and down, until things get clear.”
Other analysts argue that consumer-sentiment indicators, like the Conference Board’s index or the University of Michigan’s Survey of Consumers, have become less relevant to equity markets and how investors make short-term investing decisions.
“Consumer sentiment and investment sentiment don’t have to be in sync with each other over the short term, because what investors do to their portfolio is different from what they spend on shopping on a daily basis,” said Melissa Brown, managing director of applied research at SimCorp. “But over the longer term, they probably do [relate] … and it could start a recessionary spiral.”
Brown said a lack of consumer confidence wouldn’t significantly worry the stock market unless it is reflected in corporate earnings – but that is not something investors will have clarity on until after the end of the first quarter.
As a result, investors need to turn their attention to the latter part of this week, when key economic data like February’s durable-goods orders, retail inventories, personal spending, and the personal-consumption expenditures (PCE) price index may provide critical insights on whether there’s concrete evidence of slowing business activity and weakened consumer spending, Laffer said.
“Because consumer confidence and consumer sentiment were not great in February, businesses could have started stockpiling materials, and my guess is that consumers are doing the same thing,” Laffer told MarketWatch via phone on Friday.
To be sure, investors seemed to look past inflationary concerns after Federal Reserve Chair Jerome Powell on Wednesday downplayed Wall Street’s mounting worries that Trump’s aggressive trade war has already set the U.S. economy on a path to stagflation – a toxic mix of slower growth and higher inflation.
“Investors were hyperfocused on inflation for quite some time, so Friday’s PCE inflation data, unless it’s very different from consensus or the previously released [consumer-price index], it’s not going to make a big difference on the Fed’s rate-cutting path,” Brown said.
The Fed last week decided to leave interest rates unchanged at a range of 4.25% to 4.50% for a second straight meeting, while still penciling in two rate reductions by the end of 2025.
Economists polled by the Wall Street Journal expect headline PCE to rise 0.3% for February. That would put the 12-month rate steady at 2.5%. Core inflation – a more closely watched measure that strips out volatile food and energy costs – is also forecast to increase 0.3% on a monthly basis, and 2.7% on an annual basis.
Low VIX masks underlying volatility in markets
Despite the bumpy ride in the stock market last week, the Cboe Volatility Index VIX – also known as the VIX or Wall Street’s “fear gauge” – remained unusually calm, which Brown said could “lull investors into a sense of security” and mask underlying turbulence in the stock market.
“Low volatility in markets [last week] was surprising because you would expect, given all this tariff uncertainty, that the market would be more volatile,” she said. “What that does is just sort the winners from the losers, and therefore you have some stocks going up and others going down – and when you put them together in an index, that means volatility is not as high as it seems.”
The VIX fell over 11% last week to end at 19.28 on Friday afternoon. Typically, a value greater than 20 for the VIX indicates a higher level of volatility in the stock market.
U.S. stocks finished higher on Friday with the Dow and the S&P 500 each eking out a small gain of less than 0.1%, while the Nasdaq rose 0.5%, according to FactSet data.
For the week, the S&P 500 booked a 0.5% gain, the Dow climbed 1.2% and the Nasdaq advanced 0.2%. Both the S&P 500 and Nasdaq ended a four-week losing streak, while the Dow snapped back-to-back weekly losses.
-Isabel Wang
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03-23-25 1200ET
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