For the period March 1 – March 31, 2025.
Executive Summary
Equity markets faced significant challenges in March, with major indices experiencing notable declines. Tariffs dominated headlines and lowered expectations for economic growth while simultaneously raising expectations for inflation.
What Piqued our Interest
Uncertainty continues to reign supreme. The sell-off in markets that began in late-February continued into March and early April. Markets have been rapidly digesting changes announced by the new Trump administration. Initially, the focus was on government efficiency, with concerns related to a reduction in the federal workforce. But attention quickly turned to global trade and tariffs, pressuring equity markets to the downside.
In early March, 25% tariffs on all imports from Canada and Mexico were announced, only to have this delayed until April. Then, at the end of March, after a brief bounce back in markets, the administration announced a 25% tariff on imports of automobiles and auto parts.
On April 2, President Trump announced reciprocal tariffs, with a minimum of 10% being assessed to all countries who export to the U.S., while additional duties were assessed on countries with the largest trade imbalances with the U.S. These announcements have been larger and more far-reaching than most had expected, taking the total effective tariff rates back to levels not seen since the 1930s.
Now, with global trading rules upended, economic forecasts for both growth and inflation have turned sour. As businesses digest these changes, spending is being curtailed, slowing economic growth. Additionally, we could see price increases on a wide variety of goods and services in the coming months, reigniting inflation concerns and pushing out the timeframe for reaching the Fed’s 2% inflation target.
Meanwhile, the Fed remained on hold at their March meeting, keeping the target Fed Funds rate at 4.25-4.50%. However, the committee reduced their GDP growth expectations while simultaneously increasing their inflation and unemployment expectations—characteristics of stagflation.
Market Recap
U.S. equity markets witnessed their largest one-month decline since late 2022, and the downward pressure on equities continued in early April after the reciprocal tariff announcements. Leadership shifted, as the Tech-heavy Nasdaq underperformed the broader market and Value stocks outpaced Growth stocks. Within the S&P 500, the Technology and Consumer Discretionary sectors have seen declines near 15% on a year-to-date basis. International stocks fared better in March, and the MSCI EAFE (Developed International) Index was up 6.86% through March 31.
In fixed income, Treasury bonds rallied as yields declined, reflecting a shift to safety amidst equity market volatility. The Bloomberg U.S. Aggregate Bond Index was flat in March and up 3% year-to-date, as the 10-year Treasury yield saw a decline from its mid-January highs near 4.80% to the early April lows of 3.93%. Commodities were also up during March, rising 3.9% and leading the 1-year return across most asset classes.
Closing Thoughts
For decades, global trade expanded, and the U.S. benefited, as costs for most goods remained stable or declined. At the same time, many U.S. companies were able to export high-margin technology and services. These trends may be reversing as the new tariffs take effect, and the transition is expected to cause substantial disruptions to supply chains and raise costs on both imported and domestically produced goods. Retaliatory tariffs are also likely to arise, further raising concerns that we may be in for a period of broader trade conflicts. These disruptions are causing greater concern that economic growth will slow even more rapidly and push economies into recession.
As market volatility persists, we note that periods of high uncertainty are often poor moments to make drastic changes to portfolios. Volatility is a part of investing and history has shown that investors who resist the urge to panic and can maintain a long-term perspective are often rewarded. Having a solid financial plan that aligns with your goals can help investors weather this heightened volatility.
This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor's specific circumstances.
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