Every quarter, we’ll highlight and explain a few of the key events that happened leading up to the quarter, as well as some takeaways and insight into the impact these events may have going forward. If there are any topics that you’d like us to touch on in the future, please reach out and let us know.
Q1 2025 Market Review
A Tale of Two Markets: The S&P 493 vs. the “Mag 7”
The first quarter of 2025 painted a unique picture of market dynamics. If you removed the “Mag 7” (Apple, Microsoft, Alphabet/Google, Amazon, Nvidia, Meta, and Tesla) from the S&P 500®, the remaining stocks were up 0.5%. However, those seven names alone fell 15%, dragging the overall index down to -4.3% for the quarter. These mega-cap tech giants, which once propelled the market to new heights, now represent just 30% of the index, down from 35% at the beginning of the year1.
In previous updates, we have discussed how the S&P 500® is top-heavy towards the “Mag7” group of stocks (Apple, Microsoft, Alphabet/Google, Amazon, Nvidia, Meta, Tesla) and how that often leaves investors more concentrated than they realize, which can be a double-edged sword depending on the market environment. It is important to dive a bit deeper into your fund holdings to see how you are truly invested.
Tariffs and Market Reaction
While technically a second-quarter event, we’d be remiss not to address the elephant in the room: tariffs. On April 2nd, the U.S. imposed tariffs on 185 countries, reaching a weighted-average rate of 29% — the highest in over a century2. Markets responded sharply. The S&P 500® experienced its biggest two-day drop since March 2020, falling 13.5% year-to-date as of April 5th3. While alarming, history reminds us that the S&P 500® typically experiences a 15% pullback every 2.5 years4.
As, my colleague, Jim Shellenberger, CFA, CFP®, aptly wrote: “Investing is often compared to a journey, and like any meaningful journey, it’s rarely a smooth, straight path.” Risk is an inherent part of investing; investors that stay the course are often rewarded in the long run.
Bonds Start to Shine Again
Amid equity market stress, bonds provided a silver lining. The AGG ETF, which tracks a popular bond index, is up 2.31% for the year as of April 5th. Admittedly, there is a reason most financial media outlets only discuss stocks – bonds are boring. Though often overlooked, bonds play a crucial role in portfolios by often providing safety during equity market declines.
After a challenging 2022 in which both stocks and bonds declined, it’s encouraging to see fixed income doing its job again in 2025. Bonds are strongly impacted by Federal Reserve policy – we are hoping to receive some guidance from the Fed on their interest rate plans soon (more below).
Consumer Confidence Hits a Low — Is That a Good Thing?
U.S. consumer confidence, as measured by the Conference Board Consumer Confidence Index, hit a four-year low in March, continuing a trend seen since 2020. Another measure of consumer confidence, the University of Michigan sentiment index, is about 15% below pre-COVID levels. Interestingly, despite this decline, the S&P 500® is up nearly 90% since the start of 20205. While not a perfect indicator, lower consumer confidence has recently coincided with stronger future market returns.
This was not always the case. Up until 2020, lower consumer confidence was typically a sign of future market declines. As Warren Buffett once said, “Be fearful when others are greedy and greedy when others are fearful”. Maybe the guy knows a thing or two about investing…
The Federal Reserve’s Next Move
Tariffs have inflationary implications, and the Federal Reserve is paying attention. Congress tasks the Federal Reserve with two mandates: price stability and maximum employment. Fed Chair Jerome Powell acknowledged the challenge of balancing inflation control with market stability. A closed-door meeting on April 7th focused on interest rate policy, and while no official action has been taken, history suggests the Fed may act if markets remain under pressure. The Fed introduced an emergency rate cut after the three previous instances where the market’s drop over a two-day period was greater than this recent drop – the 1987 Black Monday crash, 2008 financial crisis and Covid in 20206.
Summary
While Q1 brought its fair share of surprises, including the reversal of tech dominance and looming tariff implications, it also highlighted the value of staying diversified and disciplined. Bonds have reemerged as a safe haven, and despite market volatility, fundamentals remain intact for long-term investors. It is important not to get caught up in the news of the day or the constant fear-inducing headlines that news organizations will run. Investors are almost always rewarded for staying invested over the long run and not making a rash decision to sell stocks after a few bad days.
As always, we remain committed to guiding you through uncertain markets with clarity and purpose. If you have questions or would like to discuss your portfolio, don’t hesitate to reach out.
If there are any topics you would like us to address in future commentaries, please let us know.
Sources
- https://www.theirrelevantinvestor.com/p/stocks-are-doing-fine
- https://finance.yahoo.com/news/heres-every-country-facing-reciprocal-tariffs-announced-by-trump-on-liberation-day231329935.html
- https://www.wsj.com/livecoverage/stock-market-tariffs-trade-war-04-04-2025/card/stocks-head-for-record-two-day-wipeoutOph5W2WKWqGaPYRh5Zea
- https://www.bergerfinancialgroup.com/stock-market-pullbacks-what-they-are-and-how-often-they-happen/
- https://www.wsj.com/finance/investing/consumer-sentiment-stock-market-research-68b80102
- https://www.bloomberg.com/news/videos/2025-04-06/fed-can-t-sit-on-the-sidelines-now-michele-says-video
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