The first quarter of 2025 brought significant volatility to markets driven by competitive AI advances overseas, and uncertainty surrounding US trade and tariff policies. The major indices posted moderate declines, marking their worst performances since Q3 2022. While a post-inauguration rally initially pushed the S&P 500 index to all-time highs in late February when President Trump delayed tariffs on Mexico and Canada, stocks quickly deteriorated on fading optimism after tariff threats re-escalated to previously unanticipated levels.

Consumer confidence plummeted and economic indicators hinted at slowing growth, fueling a “growth scare” that dragged stocks lower. March proved especially tough, as 25% tariffs imposed on Mexico, Canada, and auto imports, alongside a 10% tariff against China, materialized. Corporate earnings guidance cuts, particularly in the technology and consumer sectors, deepened fears of an economic slowdown and pushed the S&P 500 to a six-month low, finishing down about -4.3% on the quarter (‘SPY’ ETF Proxy).

Despite the challenges, market internals showed some resilience and portfolio diversification performed well after back-to-back years increasingly dominated by AI technology stocks. Value strategies outperformed growth, benefiting from broader sector exposure, while international markets, especially foreign developed ones, posted strong gains. Bonds also saw modest returns, with longer-duration securities outperforming as investors sought higher yields amid uncertainty. However, this new quarter has brought strong forced-selling, rapidly pushing select sectors into bear market territory.

Looking to Q2, markets could continue to face headwinds from on-going policy uncertainty and its potential economic impacts. That said, thus far the sharp selloff has been driven more by sentiment than economic reality. If policy outcomes and economic data prove less severe than feared with negotiated tariffs and category exclusions pending, we could still see a meaningful rebound. Consequently, markets are at one of those inflection points where more aggressive strategies and re-balancing techniques are buying into the decline, while select conservative approaches have raised cash to weather the storm.

Wherever these policy disruptions lead markets, we remain committed to navigating these complexities, focusing on diversified strategies to safeguard and grow your wealth. As always, we encourage you to reach out to your advisor if you have any questions or concerns, whatsoever, about these rapidly evolving markets.

Source: Index proxies based on dividend adjusted ETF time-series data from CSI Data, Inc. Data considered dependable, but not guaranteed. Past performance is no guarantee of future performance or profitability. Statements herein do not constitute individual investment advice – please speak with your advisor about your particular situation.