The S&P 500 index (SPX), a benchmark for US equities, has experienced notable fluctuations in recent weeks, reflecting broader market volatility and investor sentiment.
As of March 17, 2025, the S&P 500 closed at 5,675.12, marking an -10.29% decline from its all-time high of this year (See chart I created from Tradingview on www.thestandard.co.zw).
This technically means the SPX is in a correction territory, which is a drop of at least 10% but not more than 20% which becomes a bear marker.
Throughout March, the index has faced a series of downturns, with a lot of volatility observed during the month.
This trend has raised concerns among traders and investors about the underlying causes and potential strategies to navigate the current environment.
Factors contributing to market volatility
Several elements have contributed to the recent volatility in the US stock market:
Trade tariffs and policy uncertainty: The implementation of protectionist trade policies by the US administration has introduced significant uncertainty.
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The chaotic rollout of tariffs has been identified as a primary driver of increased market volatility.
Recession fears: Concerns about a potential economic slowdown have intensified. Indicators such as falling consumer confidence and the possibility of reduced corporate earnings due to tariffs have heightened fears of a recession, contributing to market instability.
Federal reserve policies: Uncertainty surrounding the Federal Reserve’s monetary policies, particularly in response to fluctuating economic indicators, has added to investor apprehension. The interplay between interest rate decisions and economic data continues to influence market dynamics. The Fed will meet on March 19 to deliberate on the monetary policy. The Fed is expected to keep the interest rates unchanged even though nobody can predict that with certainty.
Implications for traders and investors
In light of the current market conditions, traders and investors may consider the following strategies:
Maintain cash reserves: Holding a portion of assets in cash can provide flexibility to capitalise on investment opportunities as they arise, especially during periods of heightened volatility.
Invest in high-quality, undervalued businesses: Focusing on companies with strong fundamentals, such as robust earnings, low debt levels, and reliable management, can offer resilience during market downturns. I have emphasised the importance of investing in quality stocks amidst current uncertainties as some businesses with weak fundamentals may struggle to succeed in this macroeconomic environment.
Diversify with alternative assets: Allocating a portion of the portfolio to alternative assets like gold can serve as a hedge against equity market volatility. Gold prices have been on the rise, possibly due to declining equity markets in the US. This is something a portfolio should consider and buy, especially a portion of the portfolio when the equities are going up. Now may not be the best time to buy gold stocks in my view.
Performance of notable investments
Berkshire Hathaway (BRK.B): Warren Buffett’s conglomerate has demonstrated resilience, with its stock price increasing by 15.94% Year to Date (YTD) at the time of writing this article, reaching $523.01. This performance underscores the potential benefits of investing in companies with strong fundamentals during volatile periods. The business also has a lot of cash on their balance sheet which gives them a great opportunity to buy more if the equities market continues to drop in the US.
Gold: The SPDR Gold Shares ETF (GLD) has seen 12.76% increase YTD, with a current price of $276.73. The rising gold prices may reflect investors’ search for stability amid equity market fluctuations.
Impact of tariffs on the stock market
The imposition of tariffs has had a pronounced effect on both the US and global stock markets:
Market instability: Ongoing uncertainties involving trade relations with countries like China, Canada, and Mexico have led to market instability. The lack of resolution and continuous threats are causing fluctuations in investor confidence.
Earnings pressure: Tariffs have the potential to increase costs for companies, leading to compressed profit margins and lower earnings. This scenario can result in downward pressure on stock prices as investors adjust their expectations.
Global economic slowdown: The ripple effects of tariffs can contribute to a slowdown in global economic growth, further exacerbating market volatility. Analysts have noted that market confidence hinges on finalising tariff deals to mitigate these risks.
The recent performance of the S&P 500 highlights the complexities and challenges facing traders and investors in today’s market.
While volatility can be disconcerting, it also presents opportunities for those who are prepared and informed.
By maintaining cash reserves, focusing on high-quality, undervalued businesses, and considering diversification into alternative assets like gold, investors can navigate these turbulent times more effectively.
It’s essential to recognise that market conditions are influenced by many factors, including policy decisions, economic indicators, and global events.
Staying informed and adaptable is crucial. As always, these reflections are personal views and should not be taken as investment advice.
Each investor’s situation is unique, and consulting with a financial advisor is recommended when making investment decisions.
- If you want more specific insights on the stock market, contact me via www.streetwiseeconomics.com. Otherwise, until next time, trade and invest wisely and may the markets be on your side.
