The Morningstar US Market Index ended the week down 2.3% despite a burst of optimism on Friday as investors engaged in some bargain hunting. Meanwhile, 12-month core CPI landed slightly below expectations at 3.2% for February compared to 3.3%. As ever, it is important to remember these inflation figures only offer a view into what has already happened. When investing, we’re always looking ahead, not backward.
Consumer sentiment for March missed forecasts, and short-term inflation expectations ticked up to 4.9%. These developments likely reflect uncertainty around escalating tariffs, which can push costs higher for both consumers and businesses. For a deeper perspective on how tariffs might affect inflation and growth, this article by Preston Caldwell, Morningstar’s senior US economist, explains the context.
Consumer Stocks Under Pressure
Concerns about a squeeze in consumer spending was seen in the fall in both the Morningstar Consumer Cyclical Index and Morningstar Consumer Defensive Index both down 4.1% over the week. The Morningstar Energy Index and Morningstar Utility Index, which contain stocks which are traditional havens when inflation fears creep in, rose 2.7% and 2.5% respectively.
Investors Need to Focus on Long-Term Goals
While it may seem obvious to set your investment strategy to address these concerns, there is seldom a direct link between economic data and future investment returns, as markets are normally quick to adjust prices to reflect new expectations. Second, for most people investing is a marathon and not a sprint. The objective is to meet your financial goals while limiting the risk you incur over the long term and not to win each mile. By focusing too tightly on short-term returns, it is easy to miss the longer-term drivers of returns that are primarily the quality of the asset you own and the price you pay when buying it.
High-Yield Bond Yields Rise
Despite the rising inflation concerns, US Treasury bonds continued to perform their primary role of providing stability to portfolios with yields virtually unchanged last week, resulting in a year-to-date gain of 2.2%. In contrast, the Morningstar High Yield Bond Index fell 0.7% as value conscious investors pushed up the additional yield they demand to accept the risk of default. To find out more about how leading bond fund managers are combining treasury, high yield and other bond types in a single portfolio check out Morningstar’s latest report on flexible bond funds.
China Outperforms Emerging Markets
Most major markets outside the US also lost ground, but the declines were generally smaller. The Morningstar Developed ex US Index fell 1% and the Morningstar Emerging Market Index fell 0.9%. Within the emerging markets, performance has varied widely over the year to date: China is up 19%, Taiwan is down 5% and India is 1% lower, reminding us of the benefits of being selective when investing in such a diverse group of counties. To find out which markets offer the best opportunities and severest challenges for active managers check out Morningstar’s latest Active Passive Barometer.
Fed: No Rate Change Expected
All eyes are now on the Federal Reserve meeting on Wednesday. With interest rates expected to stay unchanged, market participants will be scrutinizing the accompanying statement for any hints of what lies ahead. For Morningstar’s take, you can read more here. You can find out what else is happening this week on this calendar.
In an environment shaped by shifting narratives rather than just hard data, it’s vital to keep your eye on what truly drives long-term investment success: selecting high-quality assets at sensible prices. A level-headed, valuation-conscious approach remains your greatest ally in uncertain times.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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