Financial markets spent most of March focused on and reacting to short-term events in Washington. US President Donald Trump’s further announcements of sweeping tariffs added to market volatility in March as a universal 10% tariff on all imports and higher rates on specific countries was digested. Retaliation added to the turbulence as the likes of Ontario Premier Doug Ford added a 25% export tariff to electricity exported to the US before prompt removal following Trump’s threat of raising the current 25% steel and aluminium tariff to 50% for Canada.
The Federal Reserve met again for its regular meeting, where no change was made to the benchmark Federal Funds Rate, citing higher levels of economic uncertainty. Elon Musk’s Department of Government Efficiency (DOGE) also continued with public sector layoffs and culling of government spending throughout the month which also weighed on recession concerns.
Trump’s new trade policy measures, which were subsequently imposed in early April, saw negative investment performance dominate, despite some bounces to the upside. As participants came to grips with a materially higher average tariff rate in the US, the implications of higher tariffs on inflation expectations (potential to be higher in the US) and global growth (likely lower) were quickly priced into investments.
Overall, the S&P500 slipped further into negative territory during March (-5.63%), unfortunately taking the quarterly result into the red as well. Despite the ongoing rotation away from technology stocks toward other sectors like healthcare, consumer staples and financials in previous months, the key index experienced broad declines across all sectors, except for Energy (+2.75% for the month). Consumer Discretionary slid the most (-9.8%) followed by Information Technology (-9.8%) for the month.
Outside the US, we saw the European Central Bank cut interest rates by 0.25%, bringing the benchmark rate to 2.50% and give indication that another rate cut is likely. The Bank of Canada also cut interest rates by the same margin for the seventh consecutive time, bringing their key rate to 2.75%. Elsewhere, the Bank of Japan and Bank of England also conducted their regular meetings but did not make any adjustments to their respective interest rates.
Domestically, the NZX50 was down again for the month, although to a lesser extent than in February (-2.63% on a total return basis for March). Performance was again impacted by wider market tariff turbulence and continued slow economic performance at home. Increased trade tensions, including the establishment of a 10% US tariff on NZ exports and increased US tariffs on China (our key trading partner) also weighed on performance. Across the ditch, the ASX200 index finished the month down –3.4% on a total return basis, led by Information Technology (-9.7%). A-REITs (commercial and industrial property) and Healthcare also retreated, among most other sectors, returning –4.9% and 4.6% respectively. Fears over reduced export demand from Australia (a largely export dependent nation) and weak performance in the resource sector impacted by declining iron ore prices also affected performance.
On the back of this, all the models were negative during March. Models with more growth assets (e.g. 98/2, 80/20) were more negatively affected from the severity of the equity markets for the month. This also impacted on the March quarter returns.
Some of our defensive positions and those from the underlying fund managers helped protect the models somewhat. For example, United Health Group was up +9.6%, QBE Insurance +3.8%, Global Infrastructure 3.2%, Global Clean Energy +1.7%, Roche 1.2%, Auckland Airport +1%, Transurban +1%, shorter duration in global bonds +0.3%, and Emerging Markets +0.2%.
