Monthly Market Review — March 2025

Equities

Global equities (-4.4%) fell in March, ending the period with a 2.0% year-to-date loss. Global equity markets were rattled by US foreign policy, which threatened to upend supply chains and global trade and fueled a deterioration in sentiment indicators along with fears of recession and stagflation. Uncertainty about the scope and magnitude of US tariffs and their impact on inflation and global economic growth caused volatility to spike, enhancing the appeal of perceived safe-haven assets like gold. The spot price of gold soared to new highs, topping US$3,000 per ounce for the first time. US Treasury Secretary Scott Bessent outlined an ambitious vision to reduce the US deficit to 3% – 3.5% of GDP by 2028 while avoiding a recession. The plan aims to shift more growth back into the private sector through a combination of deregulation and affordable energy. The European Central Bank (ECB) and Bank of Canada (BOC) lowered interest rates by a quarter of a percentage point, while policy rates in the US, England, and Japan remained unchanged. Germany’s new coalition government announced monumental and unprecedented spending plans to address economic growth and defense needs, with spending likely to eventually exceed €1 trillion — 50% larger than the COVID-19 package for the entire European Union (EU). China announced plans to bolster consumption and the economy.

US

US equities (-5.6%) registered their largest monthly loss since December 2022. Considerable uncertainty around the scope and magnitude of tariffs curbed risk sentiment and worsened the outlook for inflation and economic growth, fueling fears of stagflation and recession. Elevated valuations and concentrated positioning exacerbated the sell-off. Technology indices fell sharply, with growth and momentum factors significantly underperforming value factors. Automobile stocks dropped after President Donald Trump announced 25% levies on non-US automobiles and parts, marking a significant escalation in the global trade war and triggering threats of retaliation. Deteriorating business and consumer sentiment threatened to curtail spending, although economic activity indicators released in March suggested that the economy remains on a solid footing. The US Federal Reserve (Fed) left interest rates unchanged as officials continued to monitor how aggressive trade policies impact inflation, spending, and investment. The Fed cut its 2025 economic growth forecast to 1.7%, from 2.1%, and hiked its annual core inflation estimate to 2.8%, from 2.5%, signaling a greater risk of stagflation. According to FactSet, first-quarter earnings for companies in the S&P 500 Index are forecast to grow 7.3% year over year, below the 11.7% estimate at the beginning of the quarter.

Economic data released during the month was mixed but suggested that the economy remains healthy overall. Labor market indicators remained largely resilient in February, although uncertainty about government policy, decelerating government payrolls, tariff implementation, and immigration restrictions poses headwinds for employment in the months ahead. Nonfarm payroll grew by a healthy 151,000; the unemployment rate rose to 4.1%, from 4.0%; and initial jobless claims held steady at a historically low level. In February, headline retail sales rebounded to a gain of 0.2%, well below consensus expectations of 0.6%. Consumer spending climbed 0.4%, as forecast, while a 0.8% rise in personal income significantly outpaced projections of 0.4%. Dwindling consumer sentiment reinforced concerns about the economic outlook, as unease about inflation and a slowing economy sent the Conference Board’s Consumer Confidence Index down to its lowest level in four years. Data for pending, new-, and existing-home sales in February rebounded amid better weather and a larger inventory of houses for sale. However, still-high interest rates and considerable economic uncertainty are anticipated to weigh on housing demand.

The manufacturing sector slipped back into contractionary territory in March, as the Institute of Supply Management (ISM) Manufacturing Index declined to 49.0, from 50.3. Prices surged to a three-year high, reflecting tariff concerns. In February, the ISM Services Index accelerated to 53.5 amid an increase in new orders and higher employment. Notably, company commentary suggested that significant tariff anxiety may have inflated the rise in orders. The NFIB Small Business Optimism Index receded to a four-month low in February as looming tariffs spurred anxiety about cost increases, while a lack of clarity on taxes and regulations constrained spending and investment plans.

Within the S&P 500 Index (-5.6%), nine of the 11 sectors posted negative results for the month. Consumer discretionary (-8.9%) was the worst-performing sector, pulled lower by broadline retail (-10.1%). Information technology (-8.8%) and communication services (-8.3%) also underperformed. Energy (+3.6%) was the best-performing sector. Utilities (+0.3%) and health care (-1.7%) also outperformed.

Europe

European equities (-3.5%) declined. Rapidly accelerating trade frictions severely strained Europe/US relations and threatened the outlook for Europe’s economy. European leaders warned of swift countermeasures to the 25% tariffs that US President Trump levied on European cars and goods, while ECB President Christine Lagarde indicated that the tariffs could reduce eurozone GDP by 0.5% and raise inflation by a similar margin in the first year if the EU retaliates in kind. The HCOB Flash Eurozone Composite Purchasing Managers Index (PMI) revealed that eurozone business activity rose modestly in March, marking the third consecutive month of expansion. Notably, Germany recorded its fastest growth in 10 months, offsetting a sustained decline in French business activity. Eurozone employment was broadly unchanged due to a faster rise in service sector jobs and a slower rate of manufacturing job losses. Against a backdrop of lackluster economic growth and an increasingly uncertain outlook, the ECB and Swiss National Bank cut interest rates, while the central banks of Sweden, Norway, and the UK maintained their policy rates. The ECB signaled a slower pace of rate cuts due to the inflationary risks posed by a trade war, along with higher defense and infrastructure spending. Nevertheless, a second straight monthly decline in annual eurozone headline inflation, to 2.2% in March, strengthened the case for another rate cut in April. Core inflation dropped to 2.4%. The US purportedly reached agreements with Ukraine and Russia for a ceasefire in the Black Sea, although no timeline was set. Fourth-quarter earnings for companies in the STOXX 600 Index are projected to increase 8.0% from a year earlier, according to LSEG.

Europe’s manufacturing downturn continued to ease; the HCOB Eurozone Manufacturing PMI rose for the third consecutive month, to 48.6, as factory output lifted for the first time in two years. Concerningly, input cost inflation accelerated to a seven-month high, and output prices increased for the first time in seven months. Business confidence dipped to a three-month low. The HCOB Flash Eurozone Composite PMI revealed that services sector activity in March grew for the fourth straight month, but only modestly. Input costs and output prices continued to climb, but at a slower pace. The European Commission’s Economic Sentiment Indicator slipped to 95.2 in March; industry confidence was broadly stable, but consumer confidence decreased.

Germany’s (-2.1%) landmark €1 trillion fiscal spending plan won final approval from the upper house of parliament, as the chancellor-in-waiting, Friedrich Merz, secured an agreement with the Social Democrats. The massive package is set to unlock an unprecedented amount of spending on defense, infrastructure, and climate initiatives, lifting Germany’s ZEW Indicator of Economic Sentiment to its highest level since February 2022. In the UK (-1.8%), the Office for Budget Responsibility sharply downgraded its 2025 GDP growth forecast from 2% to 1%, prompting Chancellor Rachel Reeves to unveil a £14 billion plan of spending cuts to fix the country’s strained public finances amid rising borrowing costs. Encouragingly, the S&P Global Flash UK PMI Composite Output Index showed that business activity climbed to a six-month high in March, as solid growth in services helped to offset the sharpest decline in manufacturing production since October 2023.

Pacific Basin

Pacific Basin equities (-0.9%) fell over the month. In Australia (-3.5%), equities were weighed down by global trade uncertainty, with Treasurer Jim Chalmers warning of a “seismic” impact on the global economy from the US administration’s trade policies. The government unveiled roughly AU$17.1 billion (US$10.7 billion) of tax cuts in a new preelection budget that aims to ease cost-of-living concerns and win back disgruntled voters ahead of federal elections in May. Cooling inflation in February bolstered the case for the Reserve Bank of Australia (RBA) to reduce interest rates in the months ahead. The headline CPI edged down to 2.4% year over year, slightly below forecast and marking seven straight months that inflation was inside the RBA’s 2% – 3% target range. The unemployment rate was steady at 4.1% in February, but a surprising steep drop in employment, led by full-time jobs, sent the currency and government bond yields lower and further validated the case for lower rates.

In Japan (-0.5%), the Bank of Japan (BOJ) kept its benchmark interest rate unchanged at 0.5%, citing concerns about the potential impact of US trade policies on the economy. BOJ Governor Kazuo Ueda indicated that wages and prices were on a positive track and reiterated that the central bank will continue to raise interest rates if its economic outlook is realized, but he refrained from providing any hints on timing until there is more clarity on US tariffs. Inflation in Tokyo rose more than expected in March, with core consumer prices (excluding fresh food) rising 2.4% versus a 2.2% forecast. Although inflation and strong wage growth suggested that the economy was durable enough to support further rate hikes, slower-than-expected GDP growth in the fourth quarter highlighted areas of weakness in the economy, particularly consumer spending. Japan’s fourth-quarter annualized GDP was revised down to 2.2% from a preliminary reading of 2.8%, giving the BOJ more scope to pursue a gradual approach to tighter policy.

Singapore’s (+1.7%) retail sales in January rose at the fastest pace since February 2024, growing 4.5% last month on strong Chinese New Year spending. Singapore’s key core inflation gauge continued to ease and was below estimates in February, registering 0.6%. Economists forecast the economy to grow by 2.6% in 2025, near the midpoint of the central bank’s projected 1.0% – 3.0% range. New Zealand’s (-1.8%) economy exited recession, with better-than-forecast GDP growth of 0.7% in the fourth quarter, driven by tourism. However, soft domestic demand pressured the central bank to ease policy further, despite the upside inflation risks.

Emerging Markets

Emerging markets (EM) equities (+0.3%) rose slightly in March. Latin America led the gains, followed by Europe, the Middle East, and Africa (EMEA), while Asia declined.

Latin America (+3.4%) outperformed by a wide margin. Brazil (+4.3%) reported robust 3.4% economic growth in 2024, but momentum slowed more than expected in the fourth quarter amid tighter monetary policy. The government maintained its growth forecast of 2.3% for 2025 but lifted its inflation forecast to 4.9%. The central bank raised its benchmark interest rate by 100 basis points (bps) to 14.25%, signaling a smaller hike in May. In Mexico (+1.0%), the central bank reduced interest rates by 50 bps for the second straight month, to 9.0%, as annual headline inflation eased to 3.67% in mid-March. Battered by a severe drought and flagging investor confidence, the economy shrank at a 0.2% monthly pace in January, with uncertainty over US trade policy placing more pressure on the economy. Chile’s (+4.2%) central bank modestly raised its 2025 GDP growth estimate to 1.75% – 2.75% after reporting better-than-expected growth of 2.6% in 2024.

In EMEA (+2.2%), OPEC+ issued a new schedule for further oil output cuts, which will more than offset the monthly production hikes the group plans to introduce in April. Saudi Arabia’s (+0.7%) non-oil exports, including re-exports, surged 10.7% in January compared to a year earlier, while oil exports declined 0.4%. South Africa’s (+6.5%) central bank paused its rate-cutting cycle as inflation remained steady at 3.2% year over year in February. The government released its initial 2025 budget, which included an investment of over 1 trillion rand (US$54 billion) on infrastructure over the next three years to drive economic growth.

In Asia (-0.2%), China (+2.0%) announced a growth target of around 5% for 2025 and a “Special Action Plan to Boost Consumption” to lift demand and counter the economic impact of tariffs imposed by the US. Data released in March showed modest economic growth at the beginning of the year as consumption, investment, and industrial production exceeded estimates. Manufacturing activity grew at the fastest pace in a year as the official PMI rose to 50.5 in March, aided in part by foreign buyers frontloading purchases in anticipation of further US tariffs. However, a protracted property downturn, still-tepid household demand, and weaker-than-expected exports and inflation underscored the need for more policy support. Taiwan’s (-10.4%) president announced that the country’s defense budget will exceed 3% of GDP as it overhauls its military amid the rising threat from China. The central bank revised its 2025 GDP forecast down to 3.05%. India’s (+6.9%) inflation decreased more than expected to 3.61% in February, which gives the central bank more scope to cut interest rates in April. Although the manufacturing sector remained firmly in expansionary territory, the HSBC India Manufacturing PMI slid to a 14-month low of 56.3 in February amid softer increases in new orders and production.

Fixed Income

Long-end developed sovereign yields moved sharply higher amid renewed tariff-driven inflation worries. Most spread sectors produced negative total returns and underperformed government bonds on an excess return basis.

US economic data showed some signs of weakness. Consumer and government spending supported fourth-quarter GDP growth, while imports surged on tariff concerns. Nonfarm payrolls trailed forecasts and private payroll growth slowed, mainly in the transportation, trade, and utility sectors. Regional manufacturing surveys recorded steep declines amid weaker new orders and shipments. Industrial production advanced as factories produced more motor vehicles. The HCOB Eurozone Manufacturing PMI improved, though it remained in contraction, while headline inflation edged slightly lower. The UK’s headline inflation ticked down slightly, driven by lower household services inflation and clothing costs. China’s Caixin manufacturing and services PMIs rose, and stronger foreign demand boosted factory activity. Canada’s retail sales slipped, and building activity waned amid a decline in residential construction plans. An increase in Australia’s exports bolstered year-over-year GDP growth in the fourth quarter.

The Fed kept interest rates unchanged, while the ECB, BOC, and Swiss National Bank cut rates by 25 bps. Most other major central banks left their policy rates unchanged.

Most global sovereign bond yields rose. The US Treasury yield curve steepened as front-end yields rallied and long-dated yields sold off. Markets priced in a higher likelihood of three Fed cuts this year, driving front-end yields lower. In Europe, German bund yields spiked, driven by the country’s transformational shift in fiscal policy, which eases the debt brake for increased defense spending and expansive infrastructure plans. UK gilt yields edged higher as the Bank of England kept rates unchanged, signaling a potentially longer pause. Japanese government bond yields continued to climb, fueled by strong business conditions and a tighter labor market. Australian 10- and 30-year yields surged as the government announced increased debt issuance plans in an election year to alleviate cost-of-living pressures on voters. In EM, sovereign yields ended mixed. Mexican bond yields declined following Banxico’s rate cut, underscoring heightened uncertainty due to trade tensions and a weakening economy. Chinese bond yields rose as investors shifted toward riskier assets amid optimism over the country’s ambitious growth target. The Bloomberg TIPS Index delivered a 0.64% total return, and the 10-year breakeven inflation rate remained unchanged at 2.37% during the month.

Global credit bonds underperformed duration-equivalent government bonds as spreads widened. Within the securitized sectors, agency mortgage-backed, commercial mortgage-backed, and asset-backed securities underperformed duration-equivalent government bonds. Within EM, local markets debt (+1.55%) outperformed external debt (-0.76%), in US-dollar terms. Spread widening detracted from external debt performance, while a decrease in short- and intermediate-term US Treasury yields benefited results. Appreciation in EM currencies aided performance within local markets, and EM rates also had a positive impact.

Currencies

The US dollar depreciated against developed market peers due to US recession fears, leading to a higher probability of Fed interest-rate cuts and a continued sell-off in the US equity market. Within the G10, European currencies benefited the most from the dollar’s weakness, particularly high-beta, pro-risk currencies such as the Swedish krona and Norwegian krone. The euro appreciated on positive economic news, defense and infrastructure spending, and favorable developments regarding Germany’s debt brake. In EM, performance was mixed. In Latin America, the Brazilian real appreciated, supported by Brazil’s central bank rate hikes to battle inflation. The Turkish lira fell sharply versus the US dollar amid political turmoil.

Commodities

Commodities (+2.9%) rose in March, with precious metals, energy, industrial metals, and agriculture & livestock positively contributing to returns.

Energy (+3.3%) gained. Natural gas (+6.4%) climbed amid higher liquified natural gas exports from the US and lower daily production. A report by the US Energy Information Administration noting that inventories were about 7% below the five-year average also lifted natural gas. Crude oil (+3.6%), gasoline (+3.2%), gas oil (+2.0%), and heating oil (+0.3%) increased following President Trump’s announcement of tariffs on imports from countries that purchase oil and gas from Venezuela. Oil prices were also supported by supply worries after Trump warned of further sanctions on Russian oil and threatened military action against Iran.

Industrial metals (+1.3%) advanced. Copper (+4.0%) rose as US buyers stockpiled the metal due to tariff speculation, while global copper demand remained strong for its widespread use in energy and technology applications, such as electric vehicles. A smelter suspension in Chile also contributed to higher prices. Nickel (+2.9%) was up as heavy rain in the mining region of Caraga in the Philippines disrupted mining operations and led to a surge in freight costs. Zinc (+2.5%) increased after Nyrstar, a leading global zinc producer, announced an output reduction of approximately 25% from its Tasmanian smelter. Lead (+1.0%) ended higher as less production in China outweighed signs of an inventory buildup within the country. Conversely, aluminum (-2.6%) dropped on lower demand amid uncertainty in US trade policy.

Precious metals (+10.0%) rallied. Silver (+10.3%) surged on tighter supply and robust industrial demand for its use in alternative energy sources that produce electricity. Increasing global trade tensions driven by US tariffs also supported gains in perceived safe-haven assets like silver and gold (+9.9%).

Agriculture & livestock (+0.9%) ended higher. Live cattle (+8.0%) and feeder cattle (+4.3%) rallied on tightening supplies. Potential US tariffs led Canadian ranchers to reduce their herds, while demand for cattle remained robust. Cotton (+2.8%) moved higher due to strong global consumption, with international buyers actively replenishing their inventories to meet production needs. Corn (-2.3%) trended lower after the US Department of Agriculture released a report showing a substantial increase in corn acreage in 2025. Wheat (-2.8%) fell as Russia and Ukraine agreed to a tentative ceasefire in the Black Sea. Cocoa (-13.1%) was sharply lower as supply concerns eased and persistently high prices pressured demand.