First Quarter 2025 Review

By White Pine Wealth Management

Executive Summary

• U.S. stock markets fell sharply during the first quarter of 2025, driven by policy uncertainties, economic concerns, and the need to rebalance portfolios. Newly announced policies by the Trump administration, particularly around tariffs and mass deportations, made the economic outlook and future path of inflation less certain. This was enough to prompt many investors to reduce their exposure to U.S. stocks to insulate their portfolios from potential harm. Moreover, many portfolios ended 2024 out of balance. After two very strong years for “Mega-cap” growth stocks, the need to rebalance necessitated selling U.S. equities, regardless of whether the investor believed President Trump’s policies will ultimately prove harmful or beneficial.

• The S&P 500 index fell -4.27% in the first quarter and the bulk of the losses came from previously high-flying growth stocks. Indexes containing higher doses of the so-called Magnificent 7 stocks, such as the Nasdaq Composite and Russell 1000 Growth index fell by -10.26% and -9.97%, respectively, while the Russell 1000 value index actually rose +2.1%¹. 

• The outflow of cash from U.S. companies during the 1^st quarter largely moved into bonds, gold, and non-U.S. stocks. Demand for less risky bonds caused the yield on the 10-year US treasury to fall from a high of around 4.8% on January 13^th, to about 4.2% by the end of March. The price of gold, which is often seen as a safe haven during periods of economic worry, rose +14.1% during the first quarter. Investor dollars also sought refuge overseas. Non-U.S. stocks, particularly in Europe and China soundly outperformed U.S. markets in the first quarter, with the MSCI Europe Index advancing +10.6% and the MSCI China Index rising +15.1%¹.

Second Quarter 2025 Outlook

What we are watching in the second quarter of 2025:

• Public Policy: As of this print, stock market volatility so far in 2025 has been mainly the result of the broad range of potential impacts from President Trump’s policy agenda. There have not yet been notable changes to data pertaining to inflation or falling economic growth. Still, if new policy announcements continue to arise unpredictably and if the potential scope of policies, particularly tariffs, widens, additional volatility is expected as asset allocators adjust to an abnormally fluid risk environment.

• Tariffs April Update: On Wednesday, April 2^nd, President Trump announced sweeping tariffs on all U.S. trading partners, including longstanding allies. The size of the tariff package was considerably larger than the market had anticipated, sparking a dramatic selloff. In the aftermath of the tariffs announcement, volatility could continue until the ultimate scope of the tariffs solidifies and their effects on the economy become easier to assess.

• The economy / inflation: The dramatic expansion of tariffs to start 2025 shifts investor focus from inflation concerns to growth concerns. Though tariffs could cause a quick rise in consumer prices initially, inflation fears could give way to recession fears, if companies are forced to lay off workers due to rising input costs. While the potential for a recession is concerning, as long-term investors, we do not spend much time making short-term economic predictions. Instead, we prefer to focus on creating and maintaining asset mixes that can withstand a variety of economic scenarios.  

• Data vs. Words: Much of the U.S. stock market selloff to start the year was driven by headlines and talking points coming out of Washington. During times when the market is heavily influenced by fear and uncertainty, it is especially important to monitor the data for signs of deterioration and so far, the data remains sufficient. As of the end of the 1^st quarter, the unemployment rate was still near historically low levels², and corporate earnings grew +17.8% year-over-year in the 4^th quarter of 2024, the highest growth rate since 2021³. Since tariffs are subject to change and have been used as negotiating tools by the Trump Administration in the past, it is unclear whether they will remain in their current scope, and for how long. We will be monitoring the tariff situation closely to see if, and to what extent they may affect the economy and the markets.

Performance data provided by ¹Y-Charts, ²J.P. Morgan Asset Management, ³Hightower Investment Solutions, ⁴Morningstar as of 3/31/2025.