March 2025 Commentary

March lived up to its reputation for unpredictability, bringing a sharp dose of volatility that whipsawed markets and upended investor sentiment seemingly overnight. After a strong start to the year fueled by optimism around U.S. economic leadership and corporate earnings strength, the narrative quickly turned. What began as a textbook case of American exceptionalism became a bracket-busting reversal, as major indices fell into correction territory. The S&P 500 finished the quarter down 4.6%, its worst first quarter since 2022, after reaching new highs earlier in the month. What looked like a smooth path forward for markets quickly became anything but.

The culprits were numerous. A sudden escalation in trade tensions, particularly with Mexico and Canada, America’s closest allies, sparked uncertainty just as inflation concerns re-emerged. Tariff announcements from the Trump administration unsettled markets and raised the specter of a broader trade war. At the same time, soft consumer data and a decline in confidence suggested that Main Street might be less insulated than once thought. Hopes for a “Goldilocks” economy are now being replaced with concerns over stagflation, as growth slows and prices threaten to climb.

It certainly wasn’t the luck of the Irish this March, but rather a wake-up call that even strong markets aren't immune to policy missteps or global backlash. In this month’s commentary, we’ll break down the latest labor market and inflation data, recap the Federal Reserve’s March FOMC meeting, and analyze what the growing threat of tariffs might mean for markets and your portfolios. We'll also look ahead to see whether the current downturn is part of a healthy reset or a deeper shift in sentiment.

The U.S. labor market continued to show resilience in March, providing some much-needed reassurance amid rising volatility in markets and uncertainty around tariffs. The economy added 151,000 jobs in February, according to the March release from the Labor Department. While that figure came in slightly below expectations of 170,000, it still marked an improvement over January’s revised total of 125,000. The unemployment rate edged up to 4.1% from 4.0%, but remained historically low by any measure. Despite the swirl of headlines around trade and geopolitics, the data reflected a labor market that remains steady and well-anchored.

Beneath the headline numbers, however, there were some signs worth watching. Federal government employment fell by about 10,000 jobs during the month, with roughly 3,500 of those losses coming from the U.S. Postal Service, which tends to experience seasonal swings. The remaining 6,700 job losses represented the largest monthly decline in federal jobs in more than two years. Some economists noted that the timing of recent budget cuts may have delayed further declines from showing up in the report, suggesting there may be more softness to come from the public sector in the months ahead.

Still, considering the fears heading into the report, some had forecasted gains as low as 30,000, the data confirmed that underlying demand for workers remains solid. Many businesses remain upbeat about the broader direction of policy, especially as corporate tax cuts and deregulation continue to take shape. The administration argues that tariffs will bring production and jobs back to U.S. soil, though economists remain split on whether those gains will outweigh the near-term uncertainty. For now, the labor market remains one of the economy’s most reliable strengths.

Inflation data released in March painted a mixed picture for investors and policymakers. On the surface, the Consumer Price Index (CPI) report for February was better than expected, offering a dose of optimism to consumers increasingly nervous about the potential inflationary impact of tariffs. Headline CPI rose 2.8% year over year, slightly below the 2.9 percent forecast and a slowdown from January’s 3% reading. Core CPI, which excludes food and energy, rose 3.1% compared to last year, also below expectations and the lowest annual increase since 2021. The easing was helped by declining prices for used cars, gasoline, and various household items, suggesting that inflation pressures were cooling, at least temporarily.

But any celebration was short-lived. Later in the month, the release of the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation gauge, told a more complicated story. Core PCE rose 0.4% in February, the largest monthly increase in a year, pushing the annual figure to 2.8%. That keeps it well above the Fed’s 2% target and reinforces the notion that underlying inflation may still be too sticky for comfort. The divergence between CPI and PCE has muddied the waters for investors trying to determine the trajectory of prices and the likely path of interest rates.

Adding to the uncertainty is the potential impact of new tariffs on goods from China, Mexico, and Canada. While conventional thinking assumes that tariffs will immediately drive-up prices, the reality is more nuanced. Currency effects can partially offset the price impact. For example, if the U.S. dollar strengthens relative to the Mexican peso or Chinese yuan, it can help absorb some of the cost increases from tariffs, keeping consumer prices from rising sharply. For now, categories like apparel, furnishings, and electronics have remained relatively tame, but as trade policy evolves, businesses and consumers alike will be watching closely to see how it ultimately filters through to prices. The bottom line is that inflation data is not offering clear signals, and the added complexity of trade policy only makes the road ahead more uncertain.

The Federal Reserve’s March meeting offered investors a moment of clarity, or at least calm. Despite the backdrop of heightened market volatility and mounting concerns over tariffs and slowing sentiment, Fed Chair Jerome Powell struck a composed and confident tone. The central bank opted to hold its benchmark federal funds rate steady at around 4.3%, choosing to extend its wait and see approach rather than respond hastily to shifting headlines. Powell acknowledged the growing noise around tariffs and softening survey data, but emphasized that the hard data, actual job growth, consumer spending, and inflation trends, still point to an economy on solid footing.

Notably, Powell revived a familiar but recently abandoned phrase, calling the inflationary impact of tariffs “transitory,” suggesting he does not yet view them as a serious or lasting threat. While the Fed modestly revised down its growth and employment forecasts and lifted its inflation expectations for the year, the adjustments were more evolutionary than alarming. When asked about recent declines in consumer and business sentiment, Powell pointed to the underlying numbers and said plainly that the data does not yet justify a change in course.

This highlights an important distinction that investors would be wise to keep in mind. While soft data like surveys and sentiment indicators have clearly weakened, the actual foundation of the economy remains firm. There is always a risk of worrying ourselves into a downturn, much like the Pygmalion effect, where expectations alone begin to shape outcomes. That is not to say risks should be ignored, but like Chairman Powell, a measured approach is best. For now, investors should stay alert to changing conditions but avoid assuming the worst before the facts support it.

The Conference Board’s Leading Economic Index declined again in February, falling 0.3% to 101.1. This marked its second consecutive monthly decline, but there was a modest silver lining. The six-month rate of decline slowed to just 1.0%, less than half the pace of deterioration seen in the previous half-year. While the LEI still points to headwinds ahead, the pace of those headwinds may be easing. The biggest drag in February came from consumer expectations for future business conditions, which turned notably more pessimistic. A pullback in manufacturing orders also contributed to the weakness after showing a brief uptick in January.

Despite the continued downward trajectory, the recent trend suggests some stabilization may be forming beneath the surface. Since the end of 2023, both the six-month and year-over-year growth rates of the Index have shown improvement, albeit from negative levels. This shift hints that while uncertainty remains, especially around trade policy and consumer confidence, the broader economy is not signaling an imminent downturn. For now, The Conference Board expects GDP growth to moderate to around 2.0% in 2025, which would represent a slowdown but not a stall. Investors should continue to monitor leading indicators, but as with the Fed’s approach, the data calls for patience rather than panic.

As we step back from the near-term noise, it is important to recognize that tariffs and other trade actions are not being deployed solely as economic levers. They are increasingly instruments of geopolitical strategy. While the timing and delivery may feel abrupt, the broader message is that America is reassessing its role in the global order and reasserting regional priorities. This does not mean the U.S. is retreating from the world altogether, but it is clearly shifting from being the global anchor of trade and security to a more self-reliant and strategically selective power. For investors, that shift carries long-term implications.

Much of this repositioning can only be fully understood through the lens of demographics. The U.S., thanks to slower rates of urbanization and a more open stance toward immigration, has delayed its demographic reckoning by several decades. If current trends hold, the U.S. is unlikely to face its full demographic crisis until around 2070 or even later. That compares starkly with much of the developed world and especially China, which is now racing against time. China’s birth rate has fallen to just 1.09 children per woman as of 2023, one of the lowest in the world and far below the replacement rate of 2.1. Meanwhile, youth unemployment in China has surged to over 20%, creating major strain on the labor force and broader economic productivity. For a country that built its rise on a demographic dividend, these figures are not just troubling, they are make-or-break!

In contrast, the U.S. continues to benefit from earlier decisions that have improved its economic flexibility. During President Trump’s first term, the country made a significant push toward energy independence. That effort has paid off. The U.S. is now a net exporter of energy for the first time in its history, a fact that has provided critical insulation from the supply shocks that continue to plague Europe. That independence reduces our exposure to foreign instability and strengthens our hand in shaping economic policy.

So where does this leave us as investors? Amid the backdrop of shifting global structures, there is opportunity in several key areas. Infrastructure spending is poised to expand as the U.S. shores up domestic capabilities and modernizes supply chains. Defense spending is likely to remain strong, especially as international relationships evolve and military posturing becomes a greater focus. Sectors tied to the theme of "restoring" rather than outsourcing, from industrials and materials to select areas of semiconductors and advanced manufacturing, could be long-term beneficiaries of this strategic reorientation.

At the portfolio level, it is important to stay grounded. Volatility should not be ignored, but nor should it be misread. Much like the Federal Reserve’s approach to policy, this is a time for patience and perspective.