Two Key Market Indicators to Watch This Week

As we navigate through the tumultuous waters of the stock market, it's crucial to keep an eye on the key indicators that could signal a shift in market sentiment. This week, two things stand out as particularly important: the Purchasing Managers' Index (PMI) and Consumer Confidence. Let's dive into what these indicators mean and why they matter.

Purchasing Managers' Index (PMI)

The PMI is a critical gauge of the health of the manufacturing and service sectors. It provides a snapshot of economic activity and can be a leading indicator of future economic trends. A higher PMI suggests that businesses are expanding and investing, which is generally good news for the stock market. Conversely, a lower PMI could indicate economic slowdown, which might lead to a sell-off in stocks.



Consumer Confidence

Consumer Confidence is another key indicator that investors should watch closely. This survey measures how optimistic or pessimistic consumers are about the economy. High consumer confidence typically translates into increased spending, which drives economic growth and supports stock prices. However, a decline in consumer confidence can signal reduced spending, negatively impacting sectors like retail and consumer discretionary stocks.

Market Implications

The current market conditions, with the S&P 500 hitting a technical correction level, are significantly influencing investor strategies and portfolio adjustments for the week ahead. As of March 21, 2025, stocks are down slightly, around 0.50%, and are on pace for their fifth consecutive weekly loss. This downward trend is driven by broader concerns about trade policy, slowing economic data, and waning consumer sentiment, which continue to drag down investor optimism. All major indices were in correction territory at some point during the week, at least 10% below their highs. However, volatility has continued to abate, suggesting that traders believe there may be some near-term consolidating around these current levels.

Investors are rotating out of the Mag7 and out of the three "growth" sectors that house them, Information Technology, Consumer Discretionary, and Communication Services. From a breadth perspective, Information Technology and Consumer Discretionary rank 11th and ninth out of the 11 sectors in terms of percentage of stocks above their respective 50-day Moving Averages. The best-performing sectors are currently Utilities, Energy, and Consumer Staples, indicating a more defensive positioning by investors.

On the economic front, the Federal Reserve concluded its Federal Open Market Committee (FOMC) March meeting on Wednesday. The Fed chose to keep rates steady at 4.25% - 4.50% while at the same time slowing its balance sheet runoff, lowering its 2025 GDP growth forecast, and raising its inflation expectations. The somewhat "dovish" tone projected by Chair Powell during his post-decision remarks, as he used the word "transitory" to describe the inflationary effects from tariffs, set the stage for a mid-week rally that faded into the week's close. Other economic data releases of note included retail sales, housing starts, Leading Index, and initial jobless claims. Many of the data points continue to reflect mixed signals on the state of the consumer and the strength of the economy.

For the week ahead, the S&P 500 is trying to get back above 5,700, which has been an area of resistance all week. A few developments from the volatility indicators SKEW, VIX, and VVIX suggest hedging activity is beginning to slow, as put buying is slowing. Should this pattern continue, it could set the stage for a near-term bottoming effect. Not a "V" bottom, but more of a "U" bottom. There are several potential market-moving catalysts next week, which include Purchasing Managers' Index (PMI), Consumer Confidence, Durable Goods, GDP, and personal consumption expenditures (PCE) data. These data points will be important in determining the current state of the consumer and whether the new trade policy has shown any inflationary effects to this point. Additionally, there is the potential for developments around tariffs, which could be either escalating or de-escalating in nature and market-moving.

Investors are also concerned about the current technical setup of the S&P 500 and Consumer Confidence. A lack of confidence can lead to a drop in spending, which would affect GDP. The call for next week is slightly bearish, as investors will be watching whether a retest of the March 13th low price of 5,505 is in the cards.

Conclusion

In summary, the PMI and Consumer Confidence are two key indicators that investors should keep a close eye on this week. These data points will provide valuable insights into the current state of the economy and could significantly impact market sentiment and stock performance. By staying informed and adjusting portfolios accordingly, investors can better navigate the volatile market conditions and position themselves for success.