Market Update – March Returns (including dividends)

S&P 500: -5.0%

S&P 500 Equal-Weight: -6.0%

Dow Jones:  -5.2%

Nasdaq: -4.7%

MSCI EAFE:  -10.3%

MSCI Emerging Markets: -13.1%

Bonds (US Aggregate):  -1.8%

 Economic & Policy Highlights

Interest Rates & Fed Outlook

• The US Federal Reserve kept rates unchanged, but their commentary leaned hawkish, pointing to higher rates
• Canada, UK, Japan and the EU also kept rates unchanged given the unknown impacts of the war
• The Australian Central Bank raised rates again by 25 basis points, due to concerns over inflation
• Bond markets quickly abandoned any prospect of interest rate cuts in 2026, and instead openly worried about rate hikes due to possible oil induced inflation

Trade & Tariffs

• The US drafted new rules for AI chip exports worldwide
• The White House postponed its summit with China until May 14-15

Employment & Growth

• US non-farm payroll statistics disappointed in March with negative revisions for the previous two months
• Spending on US data centers surpassed the spending on office buildings
• The US Federal Reserve announced they would release $200 Billion of excess capital back to the largest US banks
• $10 Trillion of US debt matures this year (this is equal to 1/3 of all US debt)

Consumer spending & sentiment

• Sustained gas prices above $4/gallon could wipe out 78% of the economic boost from this year’s higher tax refunds
• Consumer sentiment plummeted in March due to high gas prices and worries over the war

Geopolitical Volatility & Energy

• Oil rose 51.3% as critical energy infrastructure in the Gulf was attacked and damaged by Iran
• Qatar warned that a damaged Liquified Natural Gas facility (one of the world’s largest) could take 3-5 years to fix
• A number of countries released oil from their strategic reserves, as flows through the Strait of Hormuz came to a standstill
• The US lifted sanctions on Russian oil to help moderate the price spike
• Gold fell 11.6%, as investors locked in gains and prepared for a rise in bond yields

Summary Impact

• The month of March was the beginning of a US-Israeli attack on Iran, code name Epic Fury
• There were few places to hide as stocks, bonds and even typical havens such as gold, declined.
• Oil prices spiked as the war intensified and supplies dwindled
• Many US allies refused to help or get involved in the war. Even as the Strait of Hormuz was shut down by Iran.
• Discussions regarding a ceasefire began towards month’s end

Commentary:

March provided markets with a steady diet of daily attacks by both Iran and the US-Israel coalition.  With each passing day the threats from both sides escalated, with neither willing to back down.  Surprisingly, US markets did not panic but instead began what appeared to be a steady organized decline for each week the conflict continued.  This response was likely a result of the belief that the war would be over quickly (as per the White House claims) and the fact that the US is largely energy independent.  The real damage to stock markets was felt in Europe, Asia and emerging markets which are heavily dependent on a steady flow of cheap imported oil and liquified natural gas. The outlook for earnings in these regions will face greater risks as elevated energy prices combined with shortages conspire to restrict their economies.

Fixed income markets provided limited protection in March as they posted negative returns.  Typically, when stock markets fall, bonds tend to cushion the blow.  However, in this case the fear over higher inflation from rising oil prices drove yields higher and prices lower.  A contributing factor to the bond market losses was the widening of credit spreads as investors worried about the credit quality of companies facing potentially higher costs and slower growth.

The declines in March, while not insignificant, did not present a wholesale volatility flush large enough to allow us a low-risk entry into equities.  We were somewhat surprised by the level of complacency in stock markets, as an energy shock typically has immediate economic impacts and often longer lasting secondary effects to corporate earnings.  While we acknowledge that the US, unlike most of the world, is somewhat insulated from actual energy shortages, the price of oil is still close to $100/barrel (at the time of writing).  It is interesting to note that stock markets sold off significantly more during both the Russia/Ukraine invasion (2022) and the Tariff Tantrum (2025).  This despite the economic effect being less severe from those two events, relative to the risks from the current conflict in Iran.

Much of the globe is just now beginning to face oil/liquified natural gas shortages which will become more acute the longer this conflict continues.  While a peaceful resolution remains our hope, Iran continues to have leverage and may not be willing to give the US the deal it wants. We believe growth rates for earnings estimates are likely too optimistic (having been made before the war started) and will likely be adjusted lower, should the conflict drag on.