Monthly Markets Memo - March 2025

Move Fast, Break Things

The new Trump administration didn’t waste any time getting to work implementing its agenda, which includes among many other priorities, the establishment of the Department of Government Efficiency (DOGE) under the Executive Office of the President (i.e. not cabinet-level). Led by Elon Musk and a team of data analysts and programmers, its mandate is to reduce government waste and improve its efficiency. Its methods bear a striking resemblance to the Silicon Valley ethos of “Move fast and break things,” made famous by Facebook in its early years. The goal is to prioritize growth/building/achieving results, and mistakes are a necessary part of the process that can be corrected later. While this approach certainly lends itself well to software development and high-growth startups that thrive on disruption, markets began to digest the prospect that disruption to the federal government could be further exacerbating the general uncertainty regarding the future end state of trade, labor, and tax policies. After setting new highs in the middle of the month, the S&P 500 declined sharply in the latter part of the month, ultimately ending down -1.3% for February, with bond yields declining 30-50bps across the curve from their intra-month highs. This sell-off was kicked off when consumer sentiment surveys and business surveys declined against expectations for stability or growth. Though surveys are considered soft economic data (as opposed to the “harder” economic data that federal economic agencies collect and report), it’s the first indication that markets have that the policy uncertainty is having a measurable effect on the two most important aspects of the US economy: Consumers and Services. As the administration continues its efforts to implement its policy agenda, the longer the uncertainty persists or the more unintentional damage is done to critical government agencies, the inertia of the consumer-driven economy itself could be what ultimately breaks. That is much, much harder to fix without significant monetary and fiscal intervention.

Chart of the Month: Cranking up the Vol

The term-structure of volatility expectations has shifted up significantly in the month of February and first part of March. Typically, near-term volatility is priced low and prices higher the further out into the future you go. During periods of high volatility or uncertainty, the front end of the curve will be high and will slope back to “normal” levels as markets expect the source of volatility to be resolved over time. What we’re seeing currently is a relatively flat curve that tells us markets don’t really know when to expect resolution on the current sources of uncertainty in the markets.

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