Investment Commentary | March 2025

Beware the Ides of March proved to be prudent advice for U.S. stock investors, as equities faced another challenging month. The S&P 500 Index returned -5.63% for the month, while smaller companies experienced even greater declines, with the S&P SmallCap 600 Index returning -6.14%.

Tariff Concerns and Economic Uncertainty Drive Investor Caution

Uncertainty remains the prevailing sentiment from Wall Street to Main Street. Concerns about tariffs, which could increase prices and slow economic growth, continue to dominate financial markets. Markets are generally not fans of uncertainty. The inconsistent nature of tariff implementation combined with falling consumer sentiment, a hotter than expected personal consumption expenditure reading, high stock valuations, and signs of slowing growth caused investors to seek safety during the month.

Adding to these anxieties were late-month tariffs placed on Venezuelan oil exports, similar threats against Russian oil exports, and increased tensions with Iran. While tariffs on Venezuela alone are unlikely to significantly affect oil prices, the combination of reduced supply from these three countries and potential tariffs on other energy producers could negatively impact overall supply. Counteracting these concerns is slowing economic growth, as consumers reduce spending and consequently lower petroleum demand.

Energy and Utilities Outperform Amid Defensive Shift

Unsurprisingly, given the dynamics noted, the Energy sector led stocks for the month, gaining 3.85% according to the S&P 500 Energy Sector Index. Utilities was the only other sector with positive performance, as investors turned decidedly defensive, finishing the month up 0.26%. Former market leaders Communication Services and Information Technology joined Consumer Discretionary at the bottom of monthly returns, finishing at –8.28%, -8.83%, and -8.91%, respectively.

Global Stocks Outperform Amid Tariff Concerns

Outside the U.S., stocks fared much better, with the S&P Developed Ex-US BMI Index and the S&P Emerging BMI Index finishing the month up 1.63% and 2.17%, respectively. As the threat of tariffs looms, countries are reevaluating trade deals, alliances, and globalization. With nations turning inward for consumption and production to counteract tariff effects, opportunities in these areas will likely continue to arise.

Germany’s parliament approved a 500 billion Euro infrastructure fund and exempted its defense industry from deficit spending rules. Stimulus and deficit spending are now prevalent from Berlin to Beijing, leading to unlikely alliances, such as Japan, South Korea, and China teaming up to respond to potential U.S. tariffs and enhance trade relations.

Fixed Income Holds Steady Amid Economic Challenges

Fixed income took the changes in stride. Although returns were not positive for the month, the S&P US Aggregate Index finished down -0.13%, bond investors felt better than those in US equity. The Federal Reserve is in a difficult position moving forward. With slowing growth in the US, the sharp drop in sentiment indicators, and inflation ticking back up, options to thread the needle of increasing growth to maintain full employment while lowering inflation seem few and far between. Unemployment is holding steady at 4.1%, but the drop in labor force participation to 62.4% is concerning. With fewer people participating in the labor force, wage pressures can emerge, pushing up inflation.

Precious Metals Surge as Investors Seek Safety

Investors in precious metals enjoyed strong returns, as uncertainty drove gold prices to new all-time highs above $3,000 per ounce. The S&P GSCI Precious Metals Index ended the month up 9.97%, bringing the year-to-date return to 18.25%. The significant rise in precious metal prices over the past eighteen months reflects heightened global concerns, with investors seeking safety.

Looking Ahead: Tariff Announcement Could Move Markets

The major announcement regarding tariffs, due in early April, could significantly influence markets depending on whether tariffs are better or worse than anticipated. March proved to be a difficult month for U.S. investors. However, much like the fear and uncertainty that accompany strong spring thunderstorms, the rain eventually gives way to clearer skies ahead.

At Central Trust, we continuously assess the rapidly changing investment landscape for both risks and opportunities. If you are wondering how your assets translate into securing your future, a financial plan is a great place to start. Please reach out to your team here at Central Trust to create or update a financial plan.