SUMMARY
Recent market volatility may not yet have run its course. Short duration bonds may have near-term appeal, while high-quality equities may outperform once confidence stabilizes.
Following a weekend of relatively muted news flow (by 2025 standards), equity volatility as measured by the VIX spiked more than 20% on March 10 and the Nasdaq staged a greater than 3-standard deviation decline. This VIX move lands within the 91st percentile over the last ten years. This market action was the latest chapter in a high-octane rotation within the US equity market in 2025, where low volatility > momentum, Value > Growth, and underowned sectors (Energy) > well-loved sectors (Technology).
High uncertainty leads to low corporate confidence
The corporate sector is facing near-term paralysis on key decisions around capital expenditure and hiring, as management teams wait for more clarity around trade policy, taxes, and regulation. This uncertainty will weigh on activity in coming months and quarters, and the Trump administration has been managing expectations that near-term economic weakness is an acceptable outcome of policy changes. Against this backdrop, we expect companies to delay unnecessary spending and adopt a "wait and see" approach.
Expect significant revisions to current earnings forecasts
Earnings have been a bright spot in recent quarters but current forecasts for +11% EPS growth for the S&P 500 in 2025 are being actively challenged with the swift shifts in policy and spike in uncertainty. Analysts have thus far been slow to revise their standing estimates as they work to model the risks and gain confidence that proposed policies will hold. Given this backdrop, any earnings-based valuation measure (like P/E, or price-to-earnings) offers little information value at this point. And while the market may be focused on US companies at this stage, the earnings impact of tariffs will affect forecasts around the world.
Why the technical indicators are not flashing green
In a normal economic and policy normal regime, some of March 10's technical levels would signal a good buying opportunity on a tactical (6-12 month) time horizon. But this is not a normal or predictable economic regime, and thus the regular technical rules of thumb do not apply. While sentiment has softened and investors have reduced positions, the policy and macro backdrop will remain challenged.
Bottom Line
This is not yet the time to add to risk. We expect volatility to persist, even if stocks recover some of their footing from March 10's sell-off over the next few trading sessions. As uncertainty fades and confidence stabilizes, we expect that high quality, high free cash flow companies will outperform. Uncertainty may make short duration bonds more attractive in the near term.
