Heightened volatility from the US-Iran war led to losses in equities and fixed income in March. 

SPX finished March in negative territory, on a total return basis, for the second straight month.  Some of the key drivers during March were continued geopolitical risks stemming from the war in Iran, higher energy prices, and renewed inflation concerns.  Following a return of -0.76% in February (total return), SPX (the S&P 500) returned -4.98% (total return) in March.  After returning -2.26% (total return) in February, NDX (the Nasdaq-100) returned -4.81% (total return) in March.  The Russell 2000 returned -5.01% (total return) in March after a total return of 0.80% in February.  SPX & NDX closed under their 200-day moving averages in March, which we will illustrate later in this note. 

High Yield, International and Real Estate were lower in March, while Bitcoin was positive.  Following a return of 0.19% in February (total return), High Yield (Bloomberg US Corporate High Yield Total Return Index) returned -1.18% (total return) in March.  Following a return of 4.65% in February (total return), the MSCI EAFE Index returned- 10.18% (total return) in March.  Following a return of 5.17% in February (total return), Real Estate (Dow Jones US Real Estate Capped Index) returned -6.34% (total return) in March.  Bitcoin returned +3.33% in March (Bloomberg Bitcoin Index) after returning -21.73% in February.  Both MLPs and Ethereum were higher in March.  Following a return of 9.99% in February (total return), MLPs (MerQube North America MLP & Infrastructure Total Return Index) returned 3.03% (total return) in March.  Following a return of -28.62% in February (total return), Ethereum (CME CS ETF-USD Ref Rate) returned 9.03% (total return) in March.

During March, fixed income markets were mostly driven by the war in Iran, inflation fears, and falling expectations of future rate cuts.  Treasuries sold-off across the curve for the month, and the short-end underperformed.  The 10-yr closed at roughly 4.32% to end March, up from 3.94% at the end of February, and back above the key 4.20% technical level.  The 30-year Treasury yield ended March at roughly 4.91%, up from 4.61% at the end of February.  Credit spreads widened again in March, although modestly.  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 narrowed in March for the second consecutive month.  The 2/10’s record-long inversion came to an end in the second half of 2024.

In March, the FOMC kept rates unchanged after last lowering its policy rate to a range of 3.50% – 3.75% in December.  The next Fed meeting will take place on 4/28-4/29, and there is no cut expected.  Looking ahead, and as of the end of March, the market is pricing in roughly 25bps for 2026 (one cut).  The Fed continues to target 2% inflation as its goal, and incoming inflation reports will likely continue to drive the dot plot.  However, the Fed has cut rates multiple times despite inflation remaining above the 2% target.  Furthermore, the weaking employment picture will play a role in future cuts.

Another notable datapoint from March was the release of February’s inflation data: CPI printed 0.3% M/M, matching the consensus.  Core CPI printed 0.2% M/M, also matching the consensus.  PPI printed 0.7% M/M, above the 0.3% consensus.  PCE printed 0.3%, matching the consensus.  Core PCE printed 0.4, also matching the consensus.  Additionally, and according to FactSet, the trailing 12-month P/E ratio for SPX is 27.2 which is above the 5-year average (24.7), and above the 10-year average (23.2).  The forward 12-month P/E ratio for SPX is 20.4, which is above the 5-year average (19.9), and above the 10-year average (18.9).  Additionally, per FactSet, SPX is expected to report Y/Y earnings growth of 12.6% for Q1 2026, which is below the estimate of 12.8% on December 31.  Finally, per FactSet, SPX is expected to report Y/Y revenue growth of 9.8% for Q1 2026, which is above the estimate of 8.2% on December 31.

Within commodities and currencies: WTI Crude Oil rose in March by roughly 51.50% to close near $104/bl.  Gold fell by roughly 11.50% in March and closed out the month near $4610/oz.  Finally, the USD/DXY rallied M/M and closed out March near 100.25.  2025 was one of the weakest years for the USD in several decades, and the first three months of 2026 have registered a 1.5% gain.

VOLATILITY UPDATE

After closing out February near 19.85, the VIX Index finished March near 25.25 as volatility rose alongside geopolitical uncertainty.  The 12-month high of the VIX Index was registered on 4/7/25 at 60.13.  In 2022, the VIX averaged over 25.  In 2023, the VIX averaged near 17.  In 2024, the VIX averaged near 15.50.  And in 2025, the VIX averaged near 19.

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 near 73.50, the MOVE Index closed out March near 96.  Interest rate volatility spiked with higher inflation concerns. The 12-month high of the MOVE Index was registered on 4/8/25 at 139.88.  Traders will continue to monitor this index to gauge potential future bond and equity volatility.  Equities tend to favor a subdued MOVE Index – and a low MOVE Index has been the majority of the story over the past 8 months.

LOOKING AHEAD

Among other factors, the market will be adjusting to and watching recently flared-up geopolitical risks, US trade policy headlines, employment data, inflation, earnings, yields, and fiscal policy. On the inflation front, March’s CPI will be released on 4/10, and March’s PPI will be released on 4/14. Finally, the next FOMC meeting will take place on 4/28-4/29, and the market is expecting no cut.