Market Volatility: Call Replay

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Key takeaways

  • In late February and early March, U.S. stocks rapidly retreated from record highs, approaching correction territory.

  • The market’s decline appears to reflect uncertainty surrounding new Trump administration tariff policies and growing economic concerns.

  • After leading the stock market for the last two years, so far in 2025, the technology sector is lagging the broader S&P 500 Index.

In less than three weeks, the U.S. stock market as represented by the S&P 500, moved from all-time highs to potential market correction territory. A market correction is considered a drop of 10% or more from peak levels. By March 10, 2025’s market close, the S&P 500 dropped to its lowest levels since September 11, 2024. The index fell 8.6% from its February 19, 2025, peak.1

Chart depicts performance of the S&P 500 12/31/2024 - 3/10/2025.
Source: S&P Dow Jones Indices. As of March 10, 2025.

By March 4, initial investor enthusiasm for Donal Trump's second presidential term, reflected in a one-day, 2.5% S&P 500 post-election rally followed by further gains, completely vanished. The change came as President Trump stepped up plans to implement significant new tariffs to Canadian and Mexican imports. Trump, for the second time, paused some of those tariffs. However, he increased tariffs on Chinese goods to 20% from 10%. “Uncertainty is the driver around the market’s recent selloff,” says Rob Haworth, senior investment strategy director for U.S. Bank Asset Management. “There are growing concerns about potential economic weakness, due in part to tariff impacts.” Haworth says President Trump’s statements saying he wouldn’t predict if a recession was possible may have exacerbated investor concerns. “The President’s message seems to be that he’s not worried about the near-term, tariff-induced economic fallout,” says Haworth. “That’s weighing on the market.”

“Uncertainty is the driver around the market’s recent selloff,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management. “There are growing concerns about potential economic weakness, due in part to tariff impacts.”

In addition, Trump’s policy shifts on the Russia-Ukraine war, pausing U.S. financial support for Ukraine, raised geopolitical issues that contributed to further investor uncertainty. While markets exhibited some impressive gains in recent months, heading into March, the S&P 500 suffered declines in three of the last five months.1

Another notable 2025 trend is weakness in communication services, information technology and consumer discretionary stocks. These three sectors fueled 2023 and 2024’s strong market rallies that led to S&P 500 total returns in excess of 25% each year. Now the three sectors are dragging down S&P 500 year-to-date performance.1

Chart depicts year-to-date S&P 500 sector performance on a total returns basis through March 10, 2025.
Source: S&P Dow Jones Indices. As of March 10, 2025.

Haworth believes the CBOE’s Volatility Index or VIX, also referred to colloquially as the “fear index,” is a measure worth watching. He says the VIX rising into the 20+ range is an indicator of weaker market sentiment.

Chart depicts the volatility index, or VIX, for 12/31/2024 - 3/10/2025.
Source: WSJ.com. As of March 10, 2025.

Can the economy maintain momentum?

Recent economic concerns contrast with what was a solid, economic expansion including 2023’s 2.9% Gross Domestic Product (GDP) growth and 2024’s and 2.8% GDP growth.2

While economic concerns may be a contributing factor to the recent stock market retreat, “We’re seeing the normal drawdown you see in an up market,” says Tom Hainlin, national investment strategist with U.S. Bank Asset Management. “Concerns are mounting, and investors are moving to the sidelines, but we haven’t seen (economic) growth worries manifest in data yet.”

Haworth is looking for economic clues in corporate earnings forecasts. “The market at this point is left to evaluate what multiple they should put on stocks and assess earnings expectations,” says Haworth. He notes that to date, analyst forecasts have not significantly decreased 2025 earnings expectations from previous level.

 

More widespread correction

After the March 10 close, the S&P 500 teetered on the verge of a correction. Yet 366 of the index’s 500 stocks were already trading in correction territory (10% below peak values). More than 200 stocks were in bear market territory (a decline of 20% from peak levels).3 In addition, the technology-heavy NASDAQ Composite Index fell 13.4% from its December 2024 peak. The Russell 2000 small-cap stock index dropped 17.3% below its November 2024 peak.4

Small- and mid-cap stocks started the year outpacing large-cap stocks, a significant turnaround from the prior two years. But as markets retreated, small stocks were particularly hard hit.5

Chart depicts total returns for large-cap stocks, mid-cap stocks and small-cap stocks in 2023, 2024 and year-to-date 2025 as of March 10, 2025.
Source: S&P Dow Jones Indices, LLC. And FTSE Russell. As of March 10, 2025.

“The slide in smaller stock performance reflects concerns about the economy’s strength,” says Haworth. “Real interest rates (yields minus inflation) are falling, which indicates a degree of economic uncertainty that’s unsettling the market.”

Even as the U.S. market struggles, global equities are in positive territory year-to-date. Through March 10, 2025, the MSCI EAFE Index, a measure of foreign developed market large-cap stock performance, generated an 4.70% total return, a 9% performance advantage over the S&P 500.6 “We’re seeing better equity market sentiment outside of the U.S.,” says Haworth. “This is fueled in part by proposed increases in fiscal spending, particularly for defense purposes in light of an apparent U.S. pullback in support of NATO allies.”

 

Considering broad opportunities

Despite recent challenges, investors may wish to consider an equity overweight allocation, trimming fixed income positions within a diversified portfolio. “Our position is to own a globally diversified equity portfolio, not specifically focusing on U.S. stocks or particular sectors,” says Haworth.

“We still think it’s a great time to be invested and for those with money in cash, it represents an opportunity to put capital to work in longer-term assets,” says Eric Freedman, chief investment officer for U.S. Bank Asset Management. He encourages investors to view markets with a long-term lens. “Timing the markets and trying to be precise on when to be in and when to be out is challenging,” says Freedman. “Investors should be aware there’s a lot of noise. We urge clients to take a deep breath, go back to your plan. That will increase your odds of success.”

This is an important time to check in with a wealth planning professional to make sure you’re comfortable with your current investments and that your portfolio is structured in a manner consistent with your time horizon, risk appetite and long-term financial goals.

The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. Diversification and asset allocation do not guarantee returns or protect against losses. The Russell MidCap Index provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500, is designed to measure the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. The Russell 2000 Index refers to a stock market index that measures the performance of the 2,000 smaller companies included in the Russell 3000 Index.

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Disclosures

  1. Footnote 1

    Source: S&P Dow Jones Indices LLC.

    Return to content, Footnote 1
  2. Source: U.S. Bureau of Economic Analysis.

  3. Footnote 3

    Li, Yun; Francolla, Gina; “Most of the S&P 500 is already in correction territory as benchmark teeters near milestone,” CNBC.com, March 11, 2025.

    Return to content, Footnote 3
  4. Footnote 4

    Source: WSJ.com.

    Return to content, Footnote 4
  5. Footnote 5

    S&P Dow Jones Indices LLC, FTSE Russell.

    Return to content, Footnote 5
  6. S&P Dow Jones Indices LLC, MSCI.

  7. Footnote 7

    Federal Reserve Board of Governors, “Summary of Economic Projections,” released December 18, 2024.

    Return to content, Footnote 7

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