Q1 2025 Market Review: Tariffs, Volatility, and Opportunity?

KEY TAKEAWAYS

After hitting record highs early in the year, the S&P 500 ended the quarter on a down note.
The tech-heavy Nasdaq fell sharply amid concerns about new competition in the AI space.
Value stocks outperformed growth stocks for the quarter, but small caps lagged large caps.
Tariffs have been causing volatility and price increases that are presently painful but could present an opportunity.
What will happen in the next 6 months? I don't know.

US stocks started the quarter up but finished on a down note, lagging their global counterparts amid uncertainty about the economy, competition in the AI space, and questions about the impact of tariffs under the new presidential administration. While the S&P 500 hit new highs early in the quarter, it was down for the year as of late March.1 After cutting interest rates a full percentage point last year, the US Federal Reserve held them steady. As the quarter neared an end, stocks in international developed markets and emerging markets were outpacing those in the US—a departure from recent trends and a reminder of the potential benefits of an internationally diversified portfolio. In the bond market, US Treasuries rose, sending the benchmark 10-year yield below 4.5%.2

The new presidential administration took office in the US, threatening and imposing tariffs on goods from countries including Canada, Mexico, and China, as well as from the European Union.3 The Fed kept the federal-funds rate unchanged in the 4.25%–4.5% range in March, citing elevated inflation and an uncertain economic outlook.4 On inflation, the US core consumer price index, which excludes more-volatile food and energy items, showed prices rose 3.1% from a year earlier in February, the most recent data available, which is more than a percentage point higher than the Fed’s target of 2%.5 Meanwhile, the unemployment rate edged slightly higher, to 4.1%, in February.6

The bond market was higher, with US prices up slightly overall, as measured by the Bloomberg US Aggregate Bond Index, which gained 2.6% as of March 21. The benchmark 10-year US Treasury also gained, sending its yield down to 4.25%.7 Likewise, global bonds rose, with the Bloomberg Global Aggregate Bond Index (hedged to USD)—a broad benchmark of sovereign and corporate debt—up 0.9% as of March 21.

Tariff Trepidation

Tariffs are looming over markets for the foreseeable future, with levies on China already in place and those on Canada and Mexico set to take effect in early April. Trump recently implemented a 90-day pause on retaliatory tariffs, except those against China. This has caused a recent bump in the market, but there’s still a lot of nervous investors watching the news and reacting quickly and sometimes emotionally to whatever comes out of the news outlets.

Opportunity

There’s an investing theory called the efficient market hypothesis. This theory assumes that all information is immediately known and priced into company valuations/stock prices. If the EMH is true, then it's hard/impossible to find undervalued companies to invest in for outsized returns. However, when emotions are high, the market often sells with their heart instead of their head, which leads to buying opportunities if you're willing to stomach the downward momentum. Historically, when the news is at its worst, is often the best time to buy.

One thing to keep in mind before making any buys is that the market may stay down or continue to decrease for years, or bounce back and drop again. You must have a long-term view and be prepared both emotionally and financially to battle the possible storm.

But what if you aren't earning money right now due to retirement or job loss? In that case, some of the actions you can take would include.

Tax loss harvesting
Roth conversions
Very small moves from conservative holdings to other investments that have decreased sharply or are in an emotional sale.
Be patient
Reduce unnecessary expenses
Defer major purchases

Quarterly Charts

A few charts, tweets, and images stood out to me this quarter that I thought you may find informative.

Closing

With tariffs and possible economic storms on the horizon that we don't see yet, I recommend proceeding as usual. Keep dollar cost averaging into the market with your investment accounts. If you have cash and are considering investing on the way down, then I'd recommend talking with a financial advisor about your specific situation to be sure you don't get out over your skis regarding liquidity, risk, and possible upcoming personal expenses. And do your best to keep your job, as your income is more important than most any investment advice someone could give.

index descriptions

1. S&P data © 2025 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Data as of March 21. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.
2. Returns based on the Bloomberg US Treasury Bond Index as of March 21. Bloomberg data provided by Bloomberg Finance LP. Source for US Treasuries: US Department of the Treasury.
3. Ana Swanson and Jeanna Smialek, “Trump’s Tariffs on Steel and Aluminum Go Into Effect,” The New York Times, March 12, 2025.
4. The federal-funds rate is the overnight interest rate at which one depository institution (like a bank) lends to another institution some of its funds that are held at the Federal Reserve. “Federal Reserve Issues FOMC Statement,” Federal Reserve, March 19, 2025.
5. Inflation data as defined by the consumer price index (CPI) from the US Bureau of Labor Statistics; the core CPI is an aggregate of prices paid by urban consumers for a typical basket of goods that excludes food and energy; Megan Leonhardt, “Markets Celebrate Softer Inflation, but Fed Will Remain on Pause,” Barron’s, March 12, 2025.
6. Derek Saul, “US Added 151,000 Jobs as Unemployment Rose to 4.1% in February,” Forbes, March 7, 2025.
7. “Daily Treasury Par Yield Curve Rates,” US Department of the Treasury. Data as of March 21.