March 15, 2025 Market Update

It was yet another choppy week on Wall Street.  All major U.S. indexes posted losses, but the standout headline was the S&P 500 entering correction territory on Thursday, marking a decline of more than 10% from its recent peak.  The rebound on Friday, however, helped pare the week’s losses.  At the close, the Dow, S&P 500, and Nasdaq were down 3.07%, 2.27%, and 2.43%, respectively.  Notably, the Russell 2000 Index, which tracks small-cap stocks, fared slightly better, falling just 1.5%. 

Meanwhile, bond markets remained relatively stable.  The U.S. bond market, as measured by the Vanguard Total Bond Market ETF (BND), edged down a modest 0.07% for the week.

Mr. Market’s disdain for volatility was evident last week.  At one point, the CBOE Volatility Index (VIX), often referred to as the market's “fear gauge,” spiked to approximately 29.5, its highest level since December 18, 2024.  Given that the VIX typically averages around 21, this sharp increase was clear evidence of the growing anxiety among market participants.

The primary culprit behind last week’s volatility was growing concern that the Trump administration’s tariff policies might tip the U.S. economy into recession.  Tariffs can trigger a recession by hampering global trade, increasing costs for businesses and consumers, and disrupting supply chains.  They can also provoke retaliatory tariffs, making it more expensive for U.S. companies to export goods.

For now, the extent and impact of new tariffs remain unclear.  Energy Secretary Chris Wright indicated last week that administration officials have engaged in “vigorous debates” about tariffs behind closed doors and added that it’s “certainly possible” the delayed tariffs on imports from Canada and Mexico could be withdrawn before their scheduled implementation on April 2nd.

On a more positive note, the economic data released last week provided little evidence of an imminent recession.  The Consumer Price Index (CPI) rose just 0.2% in February, its slowest monthly increase in four months, pushing year-over-year inflation down slightly to 2.8% from January's 3%.  And the labor market remains robust, with U.S. employers adding 151,000 jobs in February, extending the employment growth streak to 50 consecutive months—the second longest stretch on record.

Moreover, policymakers still have tools at their disposal, including interest rate cuts, tax reductions, and perhaps even serious Congressional action on America's persistent budget deficit.  Historical context also provides some reassurance; since the 2007-2009 global financial crisis, the S&P 500 has dropped below its 200-day moving average 15 times.  Investing at those points yielded an average one-year return of 17%, with only a single occurrence of a negative return.

It's also worth recalling that many on Wall Street were convinced that 2024 would see the start of a new recession.  Never happened.

None of this means investors should be complacent.  However, impulsive reactions to market panic carry their own risks.  Historically, some of the strongest market rebounds have followed sharp declines.  Selling prematurely can also trigger avoidable capital gains taxes and lead investors to miss potential recoveries.

That’s all for now.  Have a great weekend and invest wisely, my friends.