Market Performance for Q1 2025
S&P 500
-4.3%
NASDAQ
-10.5%
DOW 30
-1.3%
After a historic run over the past two years, U.S. equity markets hit more than a few speed bumps to kick off 2025. Concerns over tariffs, economic growth, and a significant spike in global uncertainty weighed heavily on investors. The S&P 500 and Nasdaq Composite both posted their worst quarterly performances since 2022, with the S&P 500 down 4.3%, the Dow Jones Industrial Average off 1.32%, and the Nasdaq tumbling 10.51%.
The underperformance was particularly stark on a global scale. As of March 31, the S&P 500 was trailing international equities by nearly 11%, marking the largest quarterly gap since late 1987, according to Bloomberg. This divergence has sparked renewed interest in global diversification strategies, especially as international markets offered some insulation amid U.S. volatility.
That said, it’s important to keep the longer-term context in view. Since March 2005, the S&P 500 has gained an impressive 370%, compared to just 65% for the MSCI World ex-U.S. index (Morningstar). Whether this quarter signals a true reversion to the mean remains to be seen, but it undeniably reinforces the case for diversification. Investors with international exposure likely experienced a softer drawdown in Q1.
From a sector standpoint, it wasn’t all doom and gloom. Despite broad market weakness, 7 of the 11 large-cap S&P 500 sectors posted gains in Q1. The standouts were Energy (+10.6%) and Healthcare (+5.6%) which benefited from their defensive characteristics. On the flip side, Technology (-13.8%), Consumer Discretionary (-14.6%), Communications (-6.8%), and Industrials (-1%) bore the brunt of the selloff—driven in part by high valuations and shifting investor sentiment.
Looking ahead, investors have reason to be optimistic heading into Q2, especially considering that Q1 often underperforms historically due to seasonal factors such as tax-related selling and portfolio rebalancing. According to Bespoke Investments, jobless claims data, which provides us with the best insight into the current strength of the economy, is not signaling the doom and gloom that we are hearing on the news. Initial jobless claims continue to come in better than expected and below the one-year average. Additionally, as mentioned, uncertainty surrounding the new presidential administration’s policies triggered the tenth major spike in uncertainty since 1985, but if we look back to the previous nine major spikes, eight of them led to above-average 1-year gains of 18.9%. Q2 could be our turning point. Some analysts suggest that the market may be near the bottom of the recent sell-off, setting the stage for a rebound. As LPL Financial points out, Q2 has historically brought stronger equity returns, supported by reinvestment of capital and more favorable economic signals.
*** We recognize that the current stock market environment has been especially volatile and may raise questions beyond the scope of this Q1 report. Please note that the insights provided here reflect only the developments and data through the end of the first quarter. As the situation continues to evolve, we remain committed to keeping you informed and will share timely updates as more information becomes available.
Sources:
- https://am.jpmorgan.com/gb/en/asset-management/per/insights/market-insights/marketupdates/monthly-market-review/
- https://www.marketwatch.com/story/stocks-are-rallying-hard-as-the-economy-refuses-tobuckle-will-it-last-in-2025
- https://www.federalreserve.gov/newsevents/pressreleases/monetary20241107a.htm
- https://www.fidelity.com/learning-center/trading-investing/election-market-impact
- https://www.fidelity.com/learning-center/trading-investing/stock-market-outlook
- https://media.bespokepremium.com/uploads/2024/12/TBR-Annual-Outlook-2025-Pros-andCons.pdf
All economic numbers and information discussed in this article are provided by our research partners Bespoke and YCharts.
This commentary is provided for informational and educational purposes only. As such, the information contained herein is not intended and should not be construed as individualized advice or recommendation of any kind.
The opinions and forward-looking statements expressed herein are not guarantees of any future performance and actual results or developments may differ materially from those projected. The information provided herein is believed to be reliable, but we do not guarantee accuracy, timeliness, or completeness. It is provided “as is” without any express or implied warranties.
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