Stock market outlook for March 2023

After weathering the worst year in the stock market since the financial crisis, a strong start to 2023 may have suggested to some investors sunnier days were coming. Such optimism was short-lived, however, as February served as a sobering reminder there’s still a cloud of uncertainty hanging over the U.S. economy.

The S&P 500 Index kicked off February by notching a five-month high before falling throughout much of the rest of the month and closing out the month down 2.6%. Meanwhile the Dow Jones Industrial Average fell 4.2% and the Nasdaq Composite Index fell 1.1%. 

Heading into March, Wall Street types will be focused primarily on the Federal Reserve’s continued efforts to cool red-hot inflation — and what potential impact that will have on the pace of economic growth. Here’s what to watch.

Where is the Federal Reserve headed with interest rates?

Federal Reserve policymakers are scheduled to convene for their second meeting of the year on March 21 and 22. Market participants broadly expect that central bankers will increase the benchmark federal funds rate by 25 basis points to a range of 4.75% to 5%. This rate, in turn, affects interest rates for savings accounts, credit cards, mortgages, and other types of loans.

What’s up for debate on Wall Street is the Fed’s terminal rate, or the rate at which there won’t be any more increases. Expectations vary; the latest estimate from Fed members in December suggested a terminal rate of 5.1% compared with estimates of as high as 5.75% by some banks.

Expect this to be a theme throughout the month ahead, notes Rob Haworth, senior investment strategist at U.S. Bank Wealth Management. “For March, it’s the market trying to price in the Fed terminal rate,” he says. “That leaves us in a period of uncertainty until it’s clear where that is.”

In the meantime, investors will try to predict policymakers’ next steps based on economic reports released ahead of the meeting — including the monthly labor report scheduled for release on March 10 and the monthly consumer price index (CPI) report due on March 14. The inflation report, in particular, is key to the Fed’s policy with rates.

That’s because until there’s more marked improvement on curbing inflation, the Fed is likely to continue raising interest rates, notes Tom Martin, Senior Portfolio Manager at Globalt Investments. The CPI report for January showed that consumer prices rose 6.4% over the prior 12 months, which marked a slowdown in inflation, but still not to a level more in the 4% range, he adds. “The question that’s on our mind is how sticky is this inflation and how difficult will it be to get it down to a ‘reasonable’ level.”

How is the U.S. economy faring?

Another big topic of debate on Wall Street lately relates to the state of the overall economy — including how consumers are feeling and whether companies are feeling the pressure of higher wages or a broader slowdown, Haworth says. Again, there’s some uncertainty as there’s “no all-clear sign yet,” he adds.

Such uncertainty is even evident by the wide range of predictions about a potential economic recession, Martin says. For example, a survey of business economists found that while they still believe a U.S. recession is likely this year — a majority of survey respondents now expect it will begin later this year than they had previously forecasted. “There’s a lot of uncertainty as to what can happen going forward.”

Consumer spending accounts for more than two-thirds of gross domestic product (GDP), which is why investors focus so much on measures of both consumer spending and confidence. And the backdrop of higher interest rates is already affecting the affordability of some big-ticket purchases, like homes and cars, both Haworth and Martin note. 

How to navigate investing in March

Given this backdrop of uncertainty, the stock market is likely to see some volatility as investors try to make sense of what the Fed plans to do — and how that will impact the economy. In turn, that creates challenges for people who are managing their own investments.

“You have to be careful about thinking you understand finally what’s going to happen because the data changes,” Martin says. Similarly, Haworth recommends investors brace for more of what’s already happened this year, with the market “hashing” between gains and losses one month to the next. “We’re calling it a period of chop.”

That said, there is some good news for investors who are cautious about investing right now, as the run up in interest rates means you can earn a higher return on savings in the meantime, Haworth says. “At least you’re getting paid something these days; that makes it very fair to wait.” 

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This article was originally published on and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at