Monthly Economic Insights
March 2025
A Reality Check with Room for Optimism
Markets are coming off a period of outsized enthusiasm—what some might call “froth,” particularly in areas like crypto and the Magnificent Seven tech stocks.
That exuberance is now being tempered as valuations and investor sentiment normalize in the face of a less accommodating overall economic environment, jolted by new policies, spending cuts, and tighter monetary forecasts.
The broader message? A cautious Fed, increased earnings scrutiny, and a shift in investor focus from growth at all costs to fundamentals have the market transitioning from hyper-growth mode to something more balanced and, arguably, more sustainable.
The Federal Reserve has moderated its outlook for the U.S. economy in 2025. GDP growth is now expected to be at 1.7%, down from an estimate of 2.1%, indicating a more modest pace of expansion. The unemployment rate is projected to tick up slightly, from 4.1% today to 4.4%, suggesting a slight softening in the labor market.
Inflation is now expected to come in higher at 2.7% in 2025, up from the previous estimate of 2.5%. Despite these shifts, the Fed did not change its overall projection for the federal funds rate (still expecting two rate cuts in 2025). However, the range of possible rate outcomes widened for 2025 and 2026, signaling increased flexibility about the path of interest rates going forward.
That said, equity valuations remain elevated by historical standards, and uncertainty related to inflation stickiness, geopolitical tensions, and Washington, D.C. volatility is still high. In the short term, investors with upcoming cash needs should consider how much risk they’re taking. Overallocating to equities or highly volatile assets might not be prudent if they need liquidity in the next 12–24 months.
Despite short-term headwinds, long-term investing fundamentals remain solid at this point. A look back over 70+ years shows that in any rolling 5-year period, a 50/50 or 60/40 stock/bond portfolio has never produced a negative return. While such diversification of assets does not protect against all risk, including loss of principal, nor guarantee a profit, that’s a powerful reminder of the resilience of diversified investing—even through recessions, inflation spikes, and wars. Timing the market is nearly impossible, but time in the market has consistently worked.
Cautious optimism is warranted. Yes, we're seeing air come out of some overinflated pockets of the market, and yes, we’re facing a more uncertain macro backdrop than we’ve grown used to. But that’s not a signal to change fundamental strategy necessarily—it’s a signal to revisit allocation with clarity and discipline.
Bottom Line: For those needing cash soon, one may consider dialing back risk. The U.S. economy demonstrates resilience even as market volatility and policy uncertainties persist. Stay informed and vigilant, and consider a balanced approach, as always. However, remain ready to capitalize on emerging opportunities while mitigating potential risks.
— Marcus Scott, CFA, CFP®, Chief Investment Officer (CIO) for Country Club Trust Company
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The opinions and views expressed herein are those of the author and do not necessarily reflect those of Country Club Trust Company, a division of Country Club Bank, or any affiliate thereof. Information provided is for illustrative and discussion purposes only; should not be considered a recommendation; and is subject to change. Some information provided above may be obtained from outside sources believed to be reliable, but no representation is made as to its accuracy or completeness. Please note that investments involve risk, and that past performance does not guarantee future results.