Pre-Liberation calm: markets drift ahead of tariff announcement

The final week of March 2025 was characterized by range-bound trading and a striking compression of implied volatility despite elevated policy uncertainty. Markets priced the upcoming April 2 Liberation Day tariff announcement as a binary event with uncertain magnitude. Positioning data showed hedges being added throughout the week: VIX call volume hit multi-month highs, 25-delta put volumes in SPX rose, and flows into volatility-related ETFs accelerated.

The S&P 500 traded in a narrow 30-point range, closing the week up 0.4% at 5580. Sectors rotated defensively: utilities (+1.2%) and staples (+0.8%) outperformed, while semiconductors (-1.5%) and transports (-2.1%) underperformed on tariff exposure. The dollar firmed modestly as capital sought safety. Gold closed at $3,090, testing multi-year highs.

The economic calendar was relatively benign. February PCE printed in-line at 2.8% core. Weekly jobless claims remained subdued at 224k. Q4 2024 GDP was revised to 2.4% annualized from 2.3%. The Atlanta Fed GDPNow model showed Q1 2025 tracking +2.1%. The backdrop was supportive, but the April 2 overhang dominated positioning decisions. The contrast with the following week, when tariff details would trigger a 12% three-day crash, illustrates how quickly regime shifts can override fundamentals.