Schwab Market Update

Equity Futures Dip Early on Hints of Stagflation

March 20, 2025 Joe Mazzola

Equity futures traded lower ahead of the opening as investors digest the Fed's lower growth guidance and stubborn inflation rates, hinting at potential stagflation concerns.

Published as of: March 20, 2025, 9:15 a.m. ET

The markets	Last price	Change	% change
S&P 500^® index	5,675.29	+60.63	+1.08%
Dow Jones Industrial Average^®	41,964.63	+383.32	+0.92%
Nasdaq Composite^®	17,750.79	+246.67	+1.41%
10-year Treasury yield	4.18%	-.07	--
U.S. Dollar Index	103.98	+0.55	+0.53%
Cboe Volatility Index^®	20.54	+0.66	+3.32%
WTI Crude Oil	$66.95	+$0.04	+0.09%
Bitcoin	$83,840	-$295	-0.34%

(Thursday market open) S&P 500 Index futures traded lower ahead of the opening bell as the 5,750 resistance level continues to hold despite the Fed holding rates steady on Wednesday. One key change to the FOMC's statement was that the level of uncertainty has increased.

"The updated Summary of Economic Projections had a bit of a 'stagflationary' feel as growth projections declined but the inflation projection was revised higher," according to Collin Martin CFA, director, fixed income strategy at the Schwab Center for Financial Research.

The Fed's forward-looking dot plot points to two rate cuts this year, but the underlying details were a bit more hawkish. Eight of the 19 participants projected zero to one rate cut, suggesting that we may get fewer rate cuts than expected if inflation remains elevated. The Fed has slowed its balance sheet runoff by lowering its monthly cap for maturing Treasuries to $5 billion from $25 billion. The $35 billion cap for mortgage-backed securities remains.

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Three things to watch

GDP groan: An adjustment to the projections for growth in gross domestic product (GDP) was one notable takeaway from the Fed's latest quarterly Summary of Economic Projections. The median GDP growth projection was lowered across the board for the next three years, with the economy projected to grow by 1.7%, 1.8%, and 1.8% from 2025 through 2027, respectively, according to Kathy Jones, Schwab's chief fixed income strategist. "The median projection was previously at 2% or higher for the next two years," Jones wrote in her article "Fed Holds Steady, Cites 'Elevated Uncertainty.'" Slower GDP growth is why many Fed members are expecting two more rate cuts this year.
Changing lanes: As the market correction continues, market leadership is changing. Over the last 30 trading days, the CME Cash Indices show the energy sector has risen 1.9% and the health care sector is up 1.49%. These are the only positive sectors but it's not that these sectors are climbing as much as they just aren't falling as much. Real estate is down just 1.1%, but the consumer discretionary is down more than 15%. Communications services and information technology are in the bottom three at –10.64% and –11.18% respectively.
Transportation breakdown: Today's FedEx (FDX) earnings announcement could have larger implications because it's one of the 20 stocks that make up the Dow Jones Transportation Average ($DJT). Dow theorists have used transports as a measure of economic health for 100 years. If transport stocks aren't doing well, then the theory holds that goods aren't in circulation and the economy is weakening. Many Dow theorists look for downtrends in transports to confirm a downtrend in the Dow Jones Industrial Average ($DJI) to signal a bear market.

On the move

Darden Restaurants (DRI) slid 1.68% in premarket trading after reporting lower than expected revenues. However, the company’s full year guidance was in line with analysts’ estimates.
QXO (QXO) climbed 4.75% in the early morning session after the company agreed to acquire Beacon Roofing Supply (BECN) for $11 billion. BECN rallied 1.86% on the news.
Specialty discount retailer Five Below (FIVE) jumped 11% in premarket action on better than expected earnings. The stock gave back some of those early morning gains, but higher earnings guidance appears to be helping the stock.
Bitcoin (/BTC) moved higher after the Fed's announcement on Wednesday. It started the day on an up note by increasing 1.9%. It rose to 4.5% by the stock market close.
Chances for a May rate cut rose slightly to 20% near the end of Wednesday's close, according to the CME FedWatch tool. Chances for at least a 25-basis point cut by June remain near 65.2%.
Friday could see some extra volatility as $4.5 trillion in options contracts are set to expire on this triple witching expiration. While many of the contracts are likely to expire worthless, traders will need to unwind positions if they wish to avoid assignment, which could result in increased volatility.
Initial jobless claims came in this week at 223,000 which was slightly below the consensus estimate of 224,000 but higher than last week's 221,000.

More insights from Schwab

Foggy forecasts: The Atlanta Fed's GDPNow model caused quite a stir earlier this month when it turned negative. While the tool can be helpful, it's important to understand what the tool does and doesn't do. Check out "Misunderstood Measure: How to Approach 'GDPNow'" to gain a better idea of how to include this tool in your analysis.

Chart of the day

Two-year chart of the $DJT with a low in 2023 of 13,500 to a high of 17,800 in late 2024. Support and resistance levels are at 16,780, 14,780, and 13,500. In the last four months, the index fell from its all-time high to below the 14,780 level.

Data sources: S&P Global. Chart source: thinkorswim® platform.

Past performance does not guarantee future results.
For illustrative purposes only.

The $DJT set an all-time high in November of 2024 around 17,800. However, it failed to keep the gains and broke support of 16,780. The price tested old support as a new resistance before resuming its down trend. Last week, the index broke another support level at 14,780. If old support holds as new resistance, many technicians would target the 13,500 area for support.

The week ahead

Check out the Investors' Calendar for a summary of the top economic events and earnings reports on tap this week.

March 21: No major earnings or data expected.
March 24: Expected earnings from KB Home (KBH).
March 25: March Consumer Confidence, February new home sales, and expected earnings from McCormick (MKC).
March 26: February durable goods and expected earnings from Chewy (CHW), Petco (WOOF), and Dollar Tree (DLTR).
March 27: Final Q4 gross domestic product, wholesale inventories, pending home sales, and expected earnings from Walgreens Boots Alliance (WBA), AAR (AIR), and Winnebago (WGO).

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