Key Highlights
- The S&P 500® was down 5.75% in March, bringing its YTD return to -4.59%.
- The Dow Jones Industrial Average® lost 4.20% for the month and was down 1.28% YTD.
- The S&P MidCap 400® decreased 5.68% for the month, bringing its YTD return to -6.46%.
- The S&P SmallCap 600® returned -6.36% in March and was down 9.31% YTD.
Market Snapshot
The market spent most of the month watching and reacting to short-term events in Washington (such as policy announcements and changes), as it traded down all month, with some bounces between the declines. The S&P 500 posted a broad decline of 5.75% (-5.63% with dividends), after February’s 1.42% decline (-1.30%) and a broad January 2.70% gain (2.78%). The Q1 2025 return turned negative, at -4.59% (-4.27%), with the one-year gain at 6.80% (8.25%); the 2024 gain was 23.31% (25.02%).
March’s total return decline of 5.63% would have been a decline of 2.59% without the Magnificent 7, and the YTD 4.27% decline would have been up 0.50% without them.
March continued with President Trump’s rapid executive orders and policy changes, as tariffs (along with their potential impact on the economy), inflation, employment and consumer spending became the main concerns of the market, which pulled back with increased trading on strong negative breadth. Adding to the concern were Elon Musk’s Department of Government Efficiency (DOGE) government employment reductions, as well as U.S. layoffs, which have increased (along with retail warnings). The 500™ reacted to the concern, turning negative YTD (-4.59%) and temporarily entering a correction mode (March 13, closing at 5,521.52, down 10.13% from its Feb. 19 closing high of 6,144.15).
Ontario (Canada) Premier Doug Ford added a 25% export tariff to electricity exported to the U.S. (used by 1.5 million U.S. customers in Michigan, Minnesota and New York), citing Trump’s trade policy. Trump responded by saying he would increase the planned global March 12, 2025, 25% steel and aluminum tariff to 50% for Canada. Canada then suspended its 25% tariff and Trump said he would not increase the U.S. tariff on Canada to 50%, as the 25% tariff took effect.
The U.S. House of Representative passed (along party lines, 217-215) a 10-year reconciliation bill that outlines a USD 4.5 trillion tax cut (expanding most of Trump’s 2017 cuts), adds USD 300 billion for defense and border expenditures, targets USD 2.0 trillion in spending cuts, raises the U.S. debt limit by USD 4 trillion and adds an estimated USD 2.8-USD 3.3 trillion to the deficit (over the 10-year period), which was then sent to the Senate. Congress passed a six-month spending bill, avoiding a government shutdown. Trump announced that a global 25% tariff on imported finished cars and car parts would start on April 3, 2025 (there is currently a 25% tariff on light trucks). Approximately half of U.S. vehicles are imported and approximately 60% of the parts assembled in the U.S. are imported.
The European Central Bank met and, as expected, reduced its interest rate by 0.25%, to 2.50%, indicating it would be cut again (the Street sees the rate declining to 2.00%). The Bank of Canada cut its interest rate by 0.25%, to 2.75%; it was the seventh consecutive rate cut (which was previously 5.0%). The Fed met and, as expected, left interest rates unchanged at 4.25%-4.50%, citing higher levels of economic uncertainty. In its review, it reduced the expected 2025 growth rate down to 1.7% from December 2024’s 2.1% (2026 was set at 1.8%), the year-end 2025 unemployment expectation was increased to 4.4% from 4.2% (4.2% for 2026) and the inflation estimate for 2025 increased to 2.8% from the prior 2.5% (the 2026 estimate was 2.2%); it was unchanged on its expectations of two 0.25% interest rate cuts for 2025. The market accepted the forecast of two cuts along with controllable inflation and unemployment estimates, and The 500 closed the day up 1.08%. As for the timing of the two expected interest rate cuts, the Street saw a 71% chance (based on forward instruments) of the first cut being in June, with an 86% expectation for a second cut by December. The Bank of Japan met and, as expected, kept its interest rate unchanged at 0.50%, as it warned of global uncertainty and indicated that it expects to raise rates. The Bank of England met and, as expected, left its interest rates unchanged at 4.5%, warning of global trade uncertainty. Norway’s central bank (Norges Bank) met and, as expected, left its interest rates unchanged at 4.50% (a 17-year high). The Bank of Mexico met and, as expected, reduced its interest rate by 0.50% (it cut 0.50% in February), to 9.00%, as it said it could continue to adjust rates in similar magnitudes.
