MONTH IN REVIEW
Following a return of -1.30% for February (total return), SPX (the S&P 500) returned -5.63% (total return) in March. After returning -2.69% (total return) in February, NDX (the Nasdaq-100) returned -7.61% (total return) in March. The Russell 2000 returned -6.81% in March after a loss of -5.35% in February. SPX closed under its key moving averages to close out March, which we will illustrate later in this note, as tariff-talk and weak economic data woes continued to put pressure on the market. Another notable datapoint from March was the release of February’s inflation data: Core CPI rose 0.2% M/M, less than the 0.3% consensus. PPI was flat M/M, less than the 0.3% consensus. PCE rose 0.3% M/M, matching the consensus. Core PCE rose by 0.4% M/M, exceeding the 0.3% consensus.
Fixed income markets were mixed in March. The 10-yr closed at 4.20% to end the month, below the important 4.40% technical level, and near where it closed out February. The 30-year Treasury yield ended the month at roughly 4.57%. Over the past several months and years, the correlation between equities and fixed income has been notably high – and likely will remain so. Additionally, the 2/10 Treasury yield spread remained positive and steepened in March after its record-long inversion came to an end in the second half of 2024.
There was no cut at the March Fed meeting. The next meeting will take place on 5/6-5/7. Looking forward, and as of the end of March, the market is pricing in a total of 75bps of cuts for the year (three cuts). The Fed continues to target 2% inflation as its goal and incoming inflation reports will likely continue to drive the dot plot.
According to FactSet, the trailing 12-month P/E ratio for SPX is 25.5, which is above the 5-year average (24.6), and above the 10-year average (22.3). The forward 12-month P/E ratio for SPX is 20.5, which is above the 5-year average (19.9), and above the 10-year average (18.3). Additionally, per FactSet, SPX is expected to report Y/Y revenue growth of 4.2% for Q1 2025, which is below the estimate of 5.1% on December 31. Finally, per FactSet, SPX is expected to report Y/Y earnings growth of 7.3% for Q1 2025, which is below the estimate of 11.7% on December 31.
Within commodities and currencies: WTI Crude Oil rose in March by roughly 3%. Gold rose by roughly 9% in March. Finally, the USD/DXY closed out the month near 103.80, which was significantly lower M/M.
VOLATILITY UPDATE
After closing out February at 19.63, the VIX Index rose during March and closed out the month at 22.28. The 12-month high of the VIX Index was registered on 8/5/24 at 65.73. In 2022, the VIX averaged over 25. In 2023, the VIX averaged near 17. And in 2024, the VIX averaged near 15.50.
The MOVE Index calculates the future volatility of US Treasury yields implied by current prices of options on Treasuries of various maturities. It is thought of as “The VIX Index of the Bond Market.“ After closing out February around 104, the MOVE Index slightly fell in March alongside slightly calmer yields and closed out the month near 101. Traders will continue to monitor this index to gauge potential future bond and equity volatility. Equities tend to favor a subdued MOVE Index.
Notable Charts
Source: Bloomberg, Morningstar Direct 2025. Past performance is not indicative of future results.
LOOKING AHEAD
Among other factors, the market will be adjusting to and watching the new administration, tariffs, inflation, earnings, yields, geopolitical risks, and the Fed outlook. On the inflation front, March’s CPI will be released on 4/10, and PPI will be released on 4/11. Finally, the next FOMC meeting will take place on 5/6-5/7.
