Markets Rattled

Quick Take: Stocks continued a selloff in March as tariff uncertainty gripped markets and growth concerns pushed bond yields lower (prices higher). [1] [2]

 

Bonds were a standout performer in the first quarter, while stocks finished a dismal quarter with both the S&P 500 and Nasdaq posting their worst monthly falls in over two years.[3] [4]

Uncertainty over the rollout of new broader tariffs has cast a cloud over equity markets, raising fears that a global trade war could hit growth and spark a new round of inflation.[5]

Source: https://www.bloomberg.com/news/articles/2025-03-31/stock-market-today-dow-s-p-live-updates?srnd=homepage-americas

The impact on stocks has been sharp. A tumultuous March saw the S&P losing 5.8% of its value, while the Nasdaq slumped 8.2%, 14% lower than its all-time high from December.[6] For the first quarter, which ended before the Apr 2^nd global tariff announcement, the S&P 500 shed 4.6% and the Nasdaq dropped 10.5%.[7] Both the S&P 500 and Nasdaq ended a winning streak that lasted for five quarters.[8]

Source: https://www.bloomberg.com/news/articles/2025-03-31/nasdaq-100-s-worst-quarter-in-years-sealed-by-ai-bubble-fears?srnd=homepage-canada

The S&P 500 officially slipped into correction territory, which is defined as 10% down from a recent peak. The Magnificent Seven technology names — primarily responsible for the bull markets of 2023 and 2024 — sold off heavily.[9]

Diversification between or within asset classes has helped investors avoid the steepest headline index losses.[10]

Bonds Shine

While stocks tumbled, Treasuries made steady gains. In fact, this first quarter was the first since the March 2020 pandemic era that bonds rose as stocks fell over a three-month period.[11] Since then, either stocks have been on a tear or have moved somewhat in tandem with bonds. This past quarters dynamic between bonds and stocks moving in opposite directions has been a relief and a source of protection to investors in balanced portfolios.

Bloomberg’s index of US government debt gained approximately 2% in March as investors eye trade war risks.[12] Bond markets also watch inflation closely, as inflation can erode the value of bond returns and keep the Fed from cutting rates. In March, Fed Chairman Jay Powell outlined that continuing inflation was expected to be brief and the impact of tariffs transitory, which supported speculation — and the Fed’s own forecast — of two rate cuts this year. [13][14]

Since the April 2 global tariff announcement, however, Powell noted the “larger than expected” tariffs could trigger fallout through higher inflation and slower growth, while cautioning it’s too soon to know what the central bank response should be.[15] Uncertainty over the economic outlook has meant more pressure on bond yields.

For bond markets, concerns over growth are dominating concerns over inflation.[16] All of this has led to strong performance in bonds.

Soft vs Hard Economic Data

So far the economic mood has been mostly sour through sentiment data. US consumer confidence slumped to the lowest level since January 2021 in March and registered a fourth monthly decline.[17] When thinking about their future financial prospects, expectations were at a 12-year low, while the proportion of consumers anticipating a recession remained at a nine-month high.[18]

Perhaps most notably, the latest decline in consumer sentiment reflected a growing consensus across demographics and political affiliations.[19]

Traditionally, the thought has been that pessimistic consumers typically meant lower stock markets. But since Covid, the relationship between this soft data and the stock market has actually reversed — stock returns have generally been low when consumer sentiment spikes, and vice versa (though in recent weeks, the traditional relationship has held up again).[20] Why has this been the case?

One hypothesis is that the AI revolution probably has been more of a driving force in market returns in the last few years, further highlighting the tech dependency of market gains. Granted, sentiment may still trigger a change to consumer spending, which rose minimally in February after a sharp drop in January.[21] Ultimately, the actual health of the consumer and spending patterns are more important than purely sentiment data. The hard data still shows a relatively solid underlying U.S. economy with a strong labor market with inflation that has peaked.[22]

Eggflation Relief?  

Consumer spending tends to be hampered by inflation and elevated prices, and in the last few months, increasing egg prices have drawn attention. The largest ever bird flu outbreak in the US has led to supply shortages and all-time high costs, with prices per dozen reaching $6.85 a dozen on average in March.[23] The highest price in the nation, according to a USA Today survey, was $13.39 per dozen in San Francisco, with the lowest being $3.49 per dozen in Indianapolis.[24]

Source: https://www.usatoday.com/story/money/2025/03/31/national-egg-costs-march-2025/82640243007/

Compared to last year, the “eggflation” is noticeable – Retail prices of eggs in the grocery store have nearly doubled from a year ago.[25] Thankfully, we seem to have reached a peak.

As the number of reported bird flu cases has gone down, wholesale prices of eggs has plunged more than 40% since the end of February.[26] The administration has also taken steps to boost egg imports this year, though tariffs are likely to increase those costs.[27] Relief in prices for consumers may be around the corner, though there is often a 2-3 week lag between changes in wholesale costs and prices at the grocery store.[28]

Looking Ahead

Moving into April, extreme volatility has continued as businesses and markets try to parse the impact of the “reciprocal tariffs” announced on April 2.[29] Billed as the biggest shake up to cross border trading in decades, the administration unveiled sweeping tariffs, starting at a minimum of 10% on all imports effective April 5, along with 20% tariffs on the EU and 34% additional tariffs on China, leaving investors scrambling to assess its impact. [30][31] Meanwhile, Canada and Mexico were spared from additional tariffs, as 25% tariffs already apply with a carve out for USMCA-compliant goods.[32]

China initially retaliated with a 34% tariff, while a lawsuit has been filed challenging the president’s power to impose the initial round of tariffs from February.[33][34] Faced with declining markets, on Apr 9 the administration backed off tariffs (above 10%) for 90 days — for nations that hadn’t retaliated.[35] The standoff with China continued to escalate, as the U.S. hiked import taxes on Chinese imports to 145% and China responded with an 84% tariff on U.S. goods, which have taken effect as of Apr 10.[36] As the world takes stock of the reordering of trade, further market volatility is likely.

It’s natural for market turbulence to feel unsettling, just as volatility is a typical feature of investing. A lot of us are fearful at the moment, but please remember we are often allocating for you today along with the different phases and stages of life ahead. Rather than making reactive decisions, we believe that thoughtful planning and steady management will prevail through uncertain times. As Warren Buffet says, “Be most greedy when everyone is most fearful and most fearful when everyone is more greedy.”[37]

With the upcoming holidays approaching, we wish all of you a happy Passover and a happy Easter. While Passover eggs and Easter eggs cost more than ever, it symbolizes the circle of life and how we are here to help you and your family in whatever stage of life you are now facing. Please feel free to reach out if you’d like to schedule a call, meeting or zoom to review the markets, or any changes to your financial goals. Wishing you and yours a wonderful holiday season celebrating with family and friends.

Your Friends at JSF