The March Selloff – Trouble on the Surface

After conducting hundreds of client meetings over the past 90 days, I would best describe investors' overall sentiment as “emotionally charged.” There is a lot of fear, anxiety, and uncertainty, with no shortage of media headlines on a daily, and often hourly, basis.  Historically, in the short term, the market is not a fan of this type of environment which may have been a significant contributor to the more than 5% selloff in the S&P 500 Index in March.  However, if there is a lesson that I have learned over the past 20 years in the investment industry, it’s that emotions can easily lead to investors making irrational investment mistakes, with “fear” serving as the captain of that team.

That then begs the question, how do you know when fear is warranted versus when fear is a distraction?  The answer: look at the data. Data is unemotional.  Data often reveals what’s really happening in labor markets, the economy, consumer behavior, the historical impact of policies coming out of Washington, and more. Data also enables us to examine the historical trends of similar data in the past and use them to forecast potential outcomes in the future. 

Today, I’ll be sharing with you the key data points that may help determine where the markets go from here.

Data Point #1: 8

Prior to the recent 5%+ selloff in the S&P 500 Index in March, 8 is the number of times since January 2021 that the S&P 500 Index has dropped by more than 4% in a single month. 

Data Point #2: -6.36%

For the 8 months that the S&P 500 Index dropped by over 4% in a single month between January 2021 and February 2025, -6.36% was the average monthly drop in the S&P 500 Index during that 8 month period. The S&P 500 was down 5.8% for the month of March.

Data Point #3: 6 of 8

Important next question: After the S&P 500 Index dropped by more than 4% in each of those months, did the losses historically continue, or did the market typically stage a recovery in the following month?  In 6 of the 8 occurrences, the S&P 500 posted a positive return in the month following the 4%+ monthly drop.

Data Point #4: 2.82%

If we look at ALL eight 1-month periods following the month that the S&P 500 Index dropped by 4%+ in a single month, on average, the S&P 500 Index was up 2.82% in the following month.

Here is the chart with all the data for Data Points #1 through #4:

Trump 1.0 versus Trump 2.0

When President Trump announced the first round of tariffs in February 2025, we released an article comparing the market behavior we were seeing under Trump 2.0 versus the market trends and reactions to Trump’s policies during his first term (Trump 1.0). 

Article: Trump Tariffs 2025 vs Trump Tariffs 2017

Again, more data.  During Trump’s first term, he announced tariffs throughout the 4-year period, he signed waves of executive orders, there were multiple sizable sell-offs in the stock market, and market volatility remained high throughout his first four-year term.  It was an “emotionally charged” environment similar to now.  However, what we also pointed out in that article is that, ignoring the emotions, market volatility, and politics, the S&P 500 Index was up just over 16% annualized during the Trump 1.0 era.

Will history repeat itself? Since he just took office two months ago, we still need more time to collect the economic data to compare the trend. While we acknowledge that the tariffs being levied under Trump 2.0 are impacting more countries than those under Trump 1.0, the knee-jerk reaction from markets is similar today as to what we saw during Trump’s first term.

Tax Reform is Yet To Come

The news outlets right now are filled with headlines about new tariffs, federal employee layoffs, inflation risks, recession fears, and more.  The one positive item that may be getting lost in the mix is that since the Republicans control Congress and the White House, there is a high probability that the Tax Cut and Jobs Act that were set to expire will get extended, and additional favorable tax provisions will most likely be passed either the second half of 2025 or in 2026.

Data Point #5: 5 of 7

Since 1945, Congress has passed 7 major tax reform bills.  In 5 of the 7 years that major tax reform was passed, the S&P 500 Index posted a positive return for the year.

Data Point #6: 13.12%

If you total up the S&P 500 Index performance in each of the 7 years that tax reform was passed (both the positive and negative years), the S&P 500 Index averaged a 13.12% annual rate of return in the year that tax reform was passed by Congress.  The explanation is easy: lower taxes means more money stays in the pockets of individuals and corporations, that money is then spent, and the U.S. is still largely a consumer-driven economy.

A special note here as well: if consumers and corporations have more money from lower taxes, that may help them weather some of the price increases resulting from the tariff activity.

Politics, Emotions, and Investing

March was a tough month for the markets.  It’s never fun looking at a monthly statement following a 5.8% drop in the stock market. I shared with you today a few of the many data points that we are tracking across markets and the economy to assist our clients in making informed investment decisions that will enable them to meet their short-, medium-, and long-term financial objectives.  In periods of heightened emotion, calm can often be found in looking beyond the politics and news headlines, and focusing on hard data and historical trends that can guide us in determining whether or not changes should be made to the asset allocation in client accounts.

Even after turning the page on a tough month for the market, we have yet to see a meaningful deterioration in the economic data within the economy.   If the tariffs that are being implemented begin to have an significant impact on the economy, we would expect to see a meaningful rise in the unemployment rate as companies begin to lay off workers, a drop in manufacturing hours worked, a drop in new housing permits, and a steeper inversion of the yield curve, and we have yet to see a meaningful change in any of those data points.

It's also important to remember that one or two months of bad data is not a meaningful trend, and there is not a single indicator that, by itself, trips the alarm bells. Rather, it is a combination of multiple indicators over a multi-month period of time where meaningful trends develop and can be used in determining whether or not the current environment warrants a change in investment strategy.

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.