Market Review
Fiscal policy uncertainty triggers market correction
Last month, U.S. markets fell into correction territory for the first time since 2023 as the Russell 3000® retreated more than 10% from its February 19 peak. High valuation mega-capitalization (cap) technology stocks came under pressure; the Nasdaq Index entered a correction and the “Magnificent 7” stocks — Alphabet, Inc.; Amazon.com, Inc.; Apple, Inc.; Meta Platforms, Inc.; Microsoft Corp.; Nvidia Corp. and Tesla, Inc. — posted their worst quarterly performance since 2022. Smaller-cap stocks lagged as well, and given the cyclical stock rotation, the Russell 3000® Value outperformed its growth counterpart for three sequential months, the longest stretch since late 2022 (Figure 1).
Figure 1. Monthly Performance Spread: Russell 3000 Value vs. Russell 3000 Growth
Value’s outperformance over growth stocks is experiencing its longest streak since late 2022
As of 3/31/2025. Source: Bloomberg L.P.
View accessible version of this chart.
International markets continued their outperformance over domestic equities, which has been the trend since the start of the year. Both developed international and emerging market (EM) equities outperformed their U.S. counterparts for the month. A major driver of developed international markets was the approval of infrastructure and defense spending plans by policymakers in Germany; while EMs were lifted by the announcement of additional stimulus measures in China to support consumers. The U.S. Dollar Index was down 3.2% in March, its third consecutive monthly decline.
In March, fixed income markets bounced back from the prior month’s performance; the Bloomberg U.S. Aggregate Bond Index finished slightly positive. Notably, the March 19 Federal Open Market Committee (FOMC) meeting resulted in no change to either the fed funds rate or the average number of rate cuts expected for the remaining year, despite some reports that project inflation to increase and growth to decrease.
Theme of the Month
Corrections in context — the business cycle phase matters
While the speed of the March market correction was notable considering it only took 16 trading days to materialize — the fastest pace since 2020, we would remind investors that on average, a correction typically occurs once every 12 months.
To allay concerns that 2025 will absolutely become a year of poor market performance, it is imperative to point out that most market corrections have not led to a larger drawdown — that is, on the condition such corrections do not occur in, or leading up to, an imminent recession. Given that we expect positive GDP growth in 2025, and 11% earnings growth outlook for the S&P 500®, we maintain our conviction that the business cycle remains in a slowing expansion phase. Furthermore, intra-year pullbacks are not a foolproof indicator of how equity returns may ultimately end the year (Figure 2). We continue to believe markets are struggling as unclear fiscal policy has created ambiguity and uncertainty, but in this type of environment, we prefer to look past the haze and straight at the underlying economic data.
Figure 2. S&P Calendar Year Peaks and Drawdowns (%)
Intra-year market pullbacks are not necessarily an indicator of that year's total returns
As of 3/31/2025. Source: Bloomberg L.P.
View accessible version of this chart.
Looking for a landing amid turbulence
Amid the market turbulence, there is an interesting phenomenon occurring, in which hard economic data is generally still solid, while soft data, such as sentiment surveys, has rapidly weakened. Nearly every soft data measure we monitor closely, whether for consumer or business, took a hit in the last month. For example, measures of consumer confidence and sentiment plummeted to levels not seen since 2022 (Figure 3).
Figure 3. Consumer Sentiment Indices
Rapidly weakening sentiment is driving markets lower, not slowing economic activity
As of 3/31/2025. Source: : Bloomberg L.P.
View accessible version of this chart.
Some consumer surveys have become increasingly partisan in recent years, which is a challenge, but taken as part of a broader sentiment mosaic, there is an undeniable deterioration in consumer and business confidence. We believe that if the current level of uncertainty persists and translates into slower economic activity, this could be a cause for concern; however, we have not yet seen such evidence. We continue to believe hard economic data is telling a rather contrasting story about the health of the business cycle. Data throughout March, including the payroll, retail sales and existing home sales reports, met our expectations for slowing expansion-era growth rates.
From a credit market perspective, high yield bonds have historically served as a harbinger of problems in the economy. The current spread between high yield and government bonds remains well below historical averages, and, amid the recent global equity market pullback, has yet to reach levels from last August. Further reiterating that economic data remains solid, the Federal Reserve left its policy rate unchanged at its March meeting while waiting for clarity on fiscal policy. Taken together, we think these indicators provide support for the business cycle, and ultimately, markets.
The economic consensus has adjusted to lower growth forecasts for the year due to global trade uncertainty and its potential impact on inflation, consumer spending and business investment; but the base case is still positive for growth in 2025. In our view, that base case remains appropriate despite policy and sentiment headwinds, and thus far has been supported by the hard economic data and corporate earnings.
We continue to closely monitor all economic data and analyze the upcoming first quarter earnings season. During this period of turbulence, we prefer quality large-cap equities and diversified portfolios, and hope for increased visibility about the path forward.
For more information, please contact your PNC advisor.
Figure 1: Monthly Performance Spread: Russell 3000 Value vs. Russell 3000 Growth (view image)
Value’s outperformance over growth stocks is experiencing its longest streak since late 2022
Date |
Russell 3000 Value — Russell 3000 Growth Monthly Performance Spread |
4/2015 |
0.00238 |
10/2016 |
0.00483 |
4/2018 |
0.00055 |
10/2019 |
-0.00687 |
4/2021 |
-0.01295 |
10/2022 |
0.02192 |
4/2024 |
0.02905 |
As of 3/31/2025. Source: Bloomberg L.P.
Figure 2: S&P 500 Calendar Year Peaks and Drawdowns (%) (view image)
Intra-year market pullbacks are not necessarily an indicator of that year's total returns
Last Trading Day |
Start Price |
Min Value |
Max Value |
End Price |
Min |
Range of Annual Total Returns |
S&P 500 Annual Total Return |
1991 |
363.44 |
347.02 |
479.63 |
479.63 |
-4.5% |
32.0% |
32.0% |
1993 |
516.00 |
508.6 |
573.6 |
568.2 |
-1.4% |
11.2% |
10.1% |
1995 |
575.52 |
575.52 |
798.76 |
792.04 |
0.0% |
38.8% |
37.6% |
1997 |
969.05 |
969.05 |
1315.28 |
1298.82 |
0.0% |
35.7% |
34.0% |
1999 |
1668.52 |
1647.57 |
2021.4 |
2021.4 |
-1.3% |
21.1% |
21.1% |
2001 |
1785.86 |
1356.61 |
1913.13 |
1618.98 |
-24.0% |
7.1% |
-22.6% |
2003 |
1303.17 |
1152.15 |
1622.94 |
1622.94 |
-11.6% |
24.5% |
24.5% |
2005 |
1784.96 |
1697.74 |
1923.44 |
1887.94 |
-4.9% |
7.8% |
5.8% |
2007 |
2183.92 |
2125.34 |
2447.03 |
2306.23 |
-2.7% |
12.0% |
5.6% |
2009 |
1499.17 |
1095.04 |
1857.89 |
1837.5 |
-27.0% |
23.9% |
22.6% |
2011 |
2138.30 |
1875.95 |
2305.76 |
2158.94 |
-12.3% |
7.8% |
1.0% |
2013 |
2568.55 |
2560.17 |
3315.59 |
3315.59 |
-0.3% |
29.1% |
29.1% |
2015 |
3768.68 |
3465.19 |
3939.35 |
3821.6 |
-8.1% |
4.5% |
1.4% |
2017 |
4315.08 |
4315.08 |
5242.28 |
5212.76 |
0.0% |
21.5% |
20.8% |
2019 |
4990.56 |
4868.3 |
6571.03 |
6553.57 |
-2.4% |
31.7% |
31.3% |
2021 |
7645.27 |
7645.27 |
10041.61 |
9986.7 |
0.0% |
31.3% |
30.6% |
2023 |
8145.60 |
8113.15 |
10356.59 |
10327.83 |
-0.4% |
27.1% |
26.8% |
2025 |
12883.58 |
12153.33 |
13510.29 |
12360.21 |
-5.7% |
4.9% |
-4.1% |
As of 3/31/2025. Source: Source: Bloomberg L.P.
Figure 3: Consumer Sentiment Indices (view image)
Rapidly weakening sentiment is driving markets lower, not slowing economic activity
Date |
Conference Board Consumer Confidence Index |
University of Michigan Consumer Sentiment Index |
4/2020 |
85.7 |
71.8 |
8/2020 |
86.3 |
74.1 |
12/2020 |
87.1 |
80.7 |
4/2021 |
117.5 |
88.3 |
8/2021 |
115.2 |
70.3 |
12/2021 |
115.2 |
70.6 |
4/2022 |
108.6 |
65.2 |
8/2022 |
103.6 |
58.2 |
12/2022 |
109 |
59.8 |
4/2023 |
103.7 |
63.7 |
8/2023 |
108.7 |
69.4 |
12/2023 |
108 |
69.7 |
4/2024 |
97.5 |
77.2 |
12/2024 |
109.5 |
74 |
3/2025 |
92.9 |
57 |
As of 3/31/2025. Source: Bloomberg L.P.
