March 2025 Market Commentary

Market Recap

Major Indices Post February Declines

February 2025 concluded with losses across all major U.S. stock indices, despite a rally on the final trading day of the month. The Nasdaq Composite experienced the most severe decline, falling approximately 3.9%. The S&P 500 dropped about 1.3%, while the Dow Jones Industrial Average fell 1.4%.

This downturn is particularly notable given that just weeks earlier, the S&P 500 had reached all-time highs, with the Dow and Nasdaq similarly approaching record levels. The sudden reversal highlights how quickly market sentiment can shift. The final trading day of February saw a modest recovery, with stocks rising after the release of benign inflation data that showed price pressures easing in January.

The month’s volatility stands in stark contrast to January’s positive performance, when both the Dow and S&P 500 posted gains following December’s losses. This pattern of alternating monthly performance underscores the importance of maintaining a long-term perspective rather than reacting to short-term fluctuations.

Investors should note that despite February’s setbacks, the broader context remains one of a market that has been performing strongly in recent months. The Nasdaq, for instance, entered February on a three-month winning streak before encountering headwinds.

Market Rotation: Technology Struggles While Other Sectors Gain Ground

A significant development in February was the notable rotation away from technology stocks—particularly the mega-cap tech names that had dominated market performance in 2024. This shift represents a broadening of market leadership, both within the U.S. and globally.

The Magnificent Seven group of stocks has underperformed the other 493 companies in the S&P 500 by nearly 11% so far in 2025. This rotation was exemplified by Nvidia’s performance following its fourth-quarter earnings report. Despite topping consensus expectations, the AI chipmaker’s results didn’t exceed projections by as wide a margin as in previous quarters, causing its shares to tumble over 8% in a single day.

The technology sector’s struggles have coincided with outperformance in other areas of the market. European and Chinese equities have outpaced U.S. stocks thus far in 2025. Within the U.S. market, sectors that had previously lagged technology are now finding favor with investors.

This broadening of market leadership was anticipated by some market strategists entering 2025, suggesting that the extreme concentration of returns in a handful of technology stocks might give way to a more balanced market environment. For investors, this rotation underscores the value of maintaining diversified exposure across sectors and geographies rather than chasing recent winners.

Rising Market Volatility Driven by Policy Uncertainty

February’s market turbulence can be attributed to several interconnected factors that have increased uncertainty and risk perception among investors. Chief among these has been Trump’s trade policy announcements, which have raised concerns about potential inflationary impacts and global trade disruptions.

On Feb. 26, Trump confirmed that the previously announced 25% tariffs on imports from Canada and Mexico would take effect on March 4, following a one-month pause. Additionally, he indicated plans to impose an additional 10% tariff on Chinese imports. These announcements contributed significantly to market volatility.

Beyond trade policy, several other factors have fueled market uncertainty:

1. Economic data has sent mixed signals, with some indicators suggesting a potential slowdown. The University of Michigan’s consumer sentiment index dropped to 64.7 in February, a decline of almost 10% from January and well below analysts’ expectations. Manufacturing activity grew slower than expected, and the services PMI fell into contraction territory at 49.7, its lowest level in more than two years.
2. Inflation concerns have resurfaced, with consumers’ 10-year inflation outlook rising to 3.5%, the highest level since 1995. This has complicated the Fed’s interest rate policy outlook.
3. Corporate guidance has raised some red flags, exemplified by Walmart’s disappointing sales and profit forecast for the current fiscal year.

The combination of these factors has created what market analysts describe as a “growth scare,” though many maintain that the U.S. economy remains fundamentally sound. For investors, the key takeaway is that market volatility is likely to persist as these policy uncertainties play out.

Navigating Uncertain Markets

As we reflect on February’s market performance, several important lessons emerge for investors. First, the rotation away from technology leadership reminds us of the cyclical nature of markets and the importance of maintaining diversified portfolios that aren’t overly concentrated in recently successful sectors or companies.

Second, the impact of policy decisions—particularly around trade and tariffs—highlights how quickly external factors can shift market sentiment. Rather than attempting to predict or react to every policy announcement, investors are generally better served by focusing on long-term fundamentals.

Third, the contrast between 2024 and 2025 market environments is instructive. 2024 was largely characterized by markets responding to expectations about future events (elections, central bank actions) while 2025 is shaping up to be a year when markets react to actual policy implementation and economic outcomes. This shift may create a different set of opportunities and challenges.

In this environment of heightened volatility, the time-tested principles of diversification, patience and discipline become even more valuable. Rather than making reactive decisions based on short-term market movements, investors should ensure their portfolios are aligned with their long-term goals and risk tolerance.

By maintaining perspective and adhering to sound investment principles, investors can navigate the current uncertainty while positioning themselves to benefit from future market developments.