Big Market Moves

Estimated reading time: 5 minutes

Big News, Big Market Moves

It’s only been one week since our last blog, but with all that’s happened since then, it feels like it’s been one month. In the past week, the S&P 500 is down 3.0%, the Nasdaq is down 4.1%, and the Russell 2000 is down 4.4%. All three indices are in the red year-to-date, and as of market close on March 4th, they had erased their post-election gains. 

There’s been no shortage of daily news driving these big moves, and the news feed isn’t likely to slow down anytime soon. Measures of market volatility are elevated, with the VIX index — which measures stock market volatility — at its highest reading since the December Fed meeting, and the Move Index — which measures Treasury market volatility — at its highest reading since the U.S. presidential election.

The average investor who watches the S&P 500 as their indicator of market sentiment has had their emotions flung back and forth on a daily basis. In fact, recent days have seen intraday swings in the S&P similar to what occurred for much of 2022 when the S&P was down 19.4%. Naturally, people are a bit on edge.

Growth Still Scary

Last week, we wrote about markets now taking their cues from growth fears rather than inflation, and that remains the case, especially after some troubling macro data that rolled in. 

As of last Friday, the Atlanta Fed’s GDPNow forecast showed an estimate of Q1 GDP growth at -1.5%, and that forecast was updated to -2.8% on March 3. 

These are jarring numbers given that most GDP growth estimates for 2025 are running between 2-3% each quarter. Don’t panic. The Atlanta Fed GDPNow model is updated very frequently in reaction to incoming economic data and can change drastically over the course of a quarter. That’s not to promise that it will come back up quickly, but to calm some nerves that these moves are certainly not locked in stone, and in fact can be very reactive to short-term changes. 

One such data point that drove this revision was the disappointing ISM Manufacturing read from March 3, which showed a big drop in New Orders and Employment, alongside a big rise in Prices Paid. In a nutshell, that suggests cooler demand and lower employment, with increased inflationary pressures… hence the negative impact on growth expectations. 

Add to that the tariffs going into effect on Canada, Mexico, and China this week, and markets have become skeptical, if not pessimistic, on economic growth prospects in the near-term. 

Same, Same, But Different

Much like 2018, the U.S. is again engaged in a trade war. But much different from 2018, this trade war includes Canada and Mexico, and could also include the European Union among others starting in April. In 2018, the focus was solely on China. 

Given the differences in policy, players, and the market environment this time around, it’s not wise to set similar expectations… things could change on a dime and the market’s reaction function is not likely to follow the same path. 

The one similarity that remains is that we are currently in a wait-and-see mode as investors and consumers. It’s too soon to say whether recent developments will have lasting effects on the economy, or if they will last as policies at all. It’s also too soon to say they won’t pressure growth and corporate earnings, driving more repricing in stocks. 

This is a time when investors need to embrace the urge to diversify, but resist the urge to engage in panic selling. The extremes are rarely where markets settle out, and spikes in volatility like we’ve seen of late are more likely to cool off than they are to stay elevated for extended periods. And perhaps counterintuitively, 1-year forward returns are actually highest when economic policy uncertainty is elevated.

If your portfolio is exposed to narrow parts of the market such as certain themes, sectors, or individual stocks, work to diversify it into other areas. If it’s adequately diversified, this may be a good opportunity to sit still and wait out the bumps. Painful as it may be to watch, this is what a well-diversified portfolio is built for. 

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