The anxious tone that emerged in risk markets in early February remained for much of March. Domestic equity markets declined approximately 3% in the prior month, and the VIX Index (S&P 500 implied volatility) traded above its post-crisis average for 70% of the trading days in March. The rise in intermediate and long-end rates also took pause, with the 10-year Treasury yield ending the month 12 basis points (bps) lower. Rising inflation expectations and long-end rates were significant catalysts for the February sell-off in equities but concerns of a pending trade war captured the attention of market participants in recent weeks.
On March 1, President Trump announced his administration would impose tariffs on steel and aluminum imports, which would make good on campaign promises he had previously made. Perhaps more importantly, the White House made clear that there would be no exemptions allowed for U.S. allies. Not surprisingly, equity markets responded negatively to such threats, even if the direct economic impact of steel/aluminum tariffs were relatively limited.