The US stock market got out of the gate clean in the 2025 Wall Street Stakes but stumbled in the back stretch to finish behind where it started at the one-quarter marker. High volatility levels returned to daily trading patterns midway through the quarter, with the so-called ‘Magnificent 7’ mega tech names bearing the brunt of the selling to lead the broad indexes lower. Dip-buying in these stocks continues but profit-taking sellers remained in control at quarter-end as the tech-heavy NASDAQ Composite index finished Q1 firmly into correction territory, falling 13.75% from its February 19th peak.
Much of the see-saw trading has been driven by uncertainty over the ultimate economic impact of the global tariff policy signaled by the Trump administration. Regardless of the extent to which tariffs are ultimately enacted, the issue itself has served the purpose of awakening the financial markets from their prior ambivalence toward signs of a slowing economy and reigniting inflation. Even as the Fed has stood pat on interest rates and forward guidance, recession-wary bond traders have begun to anticipate rate cuts over the remainder of 2025. Stock traders addicted to low interest rates finally seem on the verge of realizing that stocks are overvalued. Still, rotation out of the mega-cap names into less richly valued sectors – rather than a mass exodus of money out of stocks – has held declines in the broader S&P 500 index, and the Dow Jones (DJIA) index, to more muted levels thus far.
Other signs of market distress include the continued ascendence of gold, which eclipsed $3,000 per ounce for the first time in history, and the relative outperformance of utilities and other defensive sector stocks. Bonds have also begun acting like bonds again, rallying to send the 10-year US Treasury yield 33 basis points (.33%) lower in Q1. The other bright spot has been international stocks, as both the MSCI EAFE index of developed markets and the MSCI Emerging Markets index posted strong gains.
Q1 2025 performance for the major market indices follows: S&P 500 -4.59%; NASDAQ Composite -10.42%; DJIA -1.28%; Russell 2000 -9.79%; MSCI EAFE +6.15%; MSCI Emerging Markets +2.41%; Bloomberg Aggregate US Bond index +2.76%.
It remains to be seen whether the present market weakness proves to be a garden variety correction before rising to fresh all-time highs, or the beginning of a bear market. With overall stock valuations at the high end of historical levels, a weakening economy will not be able to support rising stock prices. Investors should expect heightened volatility to continue until the markets gain clarity on the actual impacts of a new tariff regime on global trade, inflation, and corporate profits.
Important Disclosures
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Market data provided by JPMorgan Asset Management and MarketWatch.com.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI EAFE Index consists of the following developed country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.
The MSCI EM (Emerging Markets) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the emerging market countries of the Americas, Europe, the Middle East, Africa and Asia. The MSCI EM Index consists of the following emerging market country indices: Brazil, Chile, Colombia, Mexico, Peru, Czech Republic, Egypt, Greece, Hungary, Poland, Qatar, Russia, South Africa, Turkey, United Arab Emirates, China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, and Thailand.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
The Bloomberg Barclays U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.