March 2025 Index Market Overview: Are We in a Correction or the Start of a Bear Market?

The financial markets have taken investors on a rollercoaster ride this March 2025. US equities have plunged under the weight of rising economic uncertainty, while European markets, particularly Germany’s DAX40, have shown resilience. This month's index overview explores the drivers behind recent market movements, what investors can expect moving forward, and how global macroeconomic shifts are reshaping investment strategies.

US Markets: Correction Territory and Mounting Uncertainty

The S&P500 fell 7.2% month-over-month (MoM), wiping out USD 4 trillion in market capitalization and dragging major tech players like NVIDIA (-USD 484bn) and Apple (-USD 460bn) into significant declines. The Nasdaq100 was hit even harder, dropping 10.4% MoM.

What Triggered the Drop?

• Economic Uncertainty: The sharp correction is primarily driven by increased uncertainty, especially regarding US trade policy, fiscal tightening, and rising geopolitical tensions.
• Earnings Concerns: While S&P500 EPS (Earnings Per Share) growth accelerated to 10.1% YoY, 12-month forward analyst expectations have slowed to 12.1%, indicating earnings growth may stagnate by mid-2025.
• Technical Breakdown Signals Caution: The S&P500 is now trading below its 200- day moving average, with momentum indicators flashing oversold conditions. A spike in volatility, reflected by the VIX hitting 29.4%, and a rise in put-call ratios indicate growing investor anxiety—pointing to potential further downside if support levels fail to hold.

Is the Market Oversold?

Technical indicators suggest overselling, but the "buy the dip" mentality persists. Over USD 35 billion flowed into top S&P500 ETFs, even into leveraged ETFs, revealing investor optimism. However, this sentiment could lead to shallow rallies and deeper corrections if headwinds persist.

FTSE100: Holding Ground Amid Global Tensions

The FTSE100 was relatively stable, falling just 0.6% MoM. Notably, defense stocks like BAE Systems (+33.3% MoM) and Rolls-Royce (+28.3% MoM) led the index, while consumer-focused companies lagged.

Trade War Threats Loom

With the UK’s largest export market being the US, the FTSE100 faces risk from President Trump’s tariffs. Given the high correlation between UK exports and FTSE earnings, any trade disruption could see EPS contracting >10% YoY.

Valuation Advantage

The FTSE100’s forward PE ratio of 11.7x is below historical averages, offering a valuation cushion. Even with a 5.7% YoY EPS drop, the valuation remains attractive, making it relatively insulated compared to US equities.

DAX40: Outperforming on Easing Policies

Germany's DAX40 surged 2.8% MoM and 16.3% YTD, significantly outperforming the MSCI World Index (-0.3%). This rally is fueled by:

• Monetary Easing: The ECB cut rates to 2.5% in March, with potential for more easing amid sluggish Eurozone growth.
• Fiscal Stimulus: Germany is expected to relax its debt break, focusing on defense and infrastructure, enhancing investor confidence.
• Strong Corporate Performance: Rheinmetall AG (+70.2% MoM) and Commerzbank AG (+22.8% MoM) led gains, indicating sectoral strength.

Valuation Watch

The DAX40’s forward PE of 14.7x is above its long-term average, suggesting that while bullish momentum remains, valuation headwinds could limit future upside unless earnings growth delivers.

Market Outlook: What to Watch in April 2025

April brings several high-impact economic events that could steer market sentiment and influence central bank decisions:

• US Employment Report (April 4th): Job growth is expected to stall, with the unemployment rate potentially rising to 4.2%. A weak report could reinforce recession fears and shift expectations for Fed rate cuts.
• US Core PCE Inflation (March 28th): As the Fed’s preferred inflation gauge, Core PCE is projected to rise 0.4% MoM (2.8% YoY). Any upside surprise could complicate monetary policy amid fragile market conditions.
• US CPI (April 10th): March inflation data will offer further insight into price pressures, with core CPI expected at 0.3% MoM (3.0% YoY). Investors will watch closely for signs of persistent inflation.

Conclusion: A Correction with Bear Market Risks?

The March 2025 market overview signals a crucial inflection point. While technical indicators show short-term overselling, elevated valuations and slowing earnings expectations could fuel a deeper correction. European indices like the DAX40 may offer more stability, but global trade tensions remain a wildcard.

For investors, diversification and vigilance are key. Stay informed on central bank policy shifts, geopolitical developments, and earnings guidance, as these will shape market momentum in the months ahead.