Q1 2025 Stock Market Update

Navigating Stock Market Volatility in 2025: Lessons from Q1 and the Tariff Turmoil

The first quarter of 2025 has been nothing short of a rollercoaster for investors. From tariff headlines dominating the news cycle to significant swings in the stock market, many are left wondering: what does it all mean for their portfolios and financial futures? In this post, we’ll break down the key themes from a recent iWealth podcast episode, exploring the impact of tariffs, the importance of staying disciplined, and how to approach investing during uncertain times.

The Tariff Whirlwind: Market Jitters and Investor Anxiety

If you’ve been following the financial news, you know that tariffs have been front and center. Each day seems to bring a new development, with major publications like The Wall Street Journal reporting on the latest twists and turns. For many investors, this unpredictability feels like “Groundhog Day”—the same worries resurfacing, with no clear resolution in sight.

It’s not just headlines causing concern. Real people are feeling the effects. During a recent meeting, one investor lamented, “I lost a huge amount of my retirement. Looks like I have to work another year.” While working longer isn’t always a negative, losing money certainly is. This sentiment reflects the anxiety many are experiencing as they watch their portfolios fluctuate.

Q1 2025 Stock Market Recap: Winners, Losers, and a Rotation in Play

Let’s look at the numbers. The S&P 500 was down 4.2% for the quarter, while small-cap stocks, as measured by the Russell 2000, fell 9.5%. For context, a market “correction” is typically defined as a 10% pullback from recent highs, and a “bear market” as a 20% drop. Small caps flirted with correction territory, and some indices have even dipped into bear market zones.

But it wasn’t all bad news:

• Energy stocks surged, up 9.5%.
• Healthcare gained 6%.
• Consumer staples and utilities both rose 4%.
• International stocks performed relatively well for the first time in a while.

The big story? A rotation out of technology and into dividend-paying, established companies—the so-called “big, old, and good” stocks. These are household names that generate steady profits and pay dividends. Investors sought safety and stability, shifting away from the high-flying tech sector.

Volatility Returns: Why It’s Not the End of the World

For the past two years, markets have been relatively calm. Historically, though, it’s normal to see an average intra-year decline of about 13%. The recent volatility, then, is more a return to the norm than an anomaly. The trigger this time? Tariffs and the accompanying political uncertainty, particularly as policies shift and rhetoric heats up.

Many investors have been directly affected by tariffs, both positively and negatively. However, from a long-term investment perspective, these events rarely “move the needle.” History shows that those who stay disciplined and invested—rather than reacting to every headline—tend to fare better over time. The key is to ensure your asset allocation matches your goals and to rebalance as needed, rather than making knee-jerk decisions.

Investment Strategies: Fundamentals vs. Technicals

There are two primary schools of thought when it comes to investing:

• Fundamental Analysis: This involves evaluating companies based on their financial health, management quality, and long-term prospects. Investors who use this approach look for solid businesses they believe will thrive over time.
• Technical Analysis: This method relies on charts, price patterns, and statistical indicators like moving averages. Technical traders often react quickly to market moves, buying and selling based on short-term trends.

During a recent market spike—when a 90-day pause in tariffs was announced—the market jumped 8-10% in a single day. Many technical traders had already pulled out during the downturn and missed the rebound. This highlights a crucial lesson: trying to time the market or make short-term moves based on technical signals can backfire. Staying invested, especially with a fundamentally sound portfolio, is often the wiser path.

Reading the Stock Market’s “Speedometers”

Some investment firms use visual tools, like “speedometers,” to gauge market conditions—green for go, yellow for caution, and red for stop. Recently, some indicators have shifted from green to yellow, reflecting increased uncertainty. However, only two have turned red: geopolitical risk and high price-to-earnings ratios. Most signals remain positive, and the overall economic backdrop is still supportive.

Unemployment remains low, hovering around 4.6%. Even with some government job losses, the broader employment picture is strong. As long as consumers have money and continue spending, the market’s long-term outlook remains bullish.

What Should Financial Investors Do Now?

With all this volatility, what’s the best course of action?

• Take a Deep Breath: Remember, market downturns are normal and temporary. “This too shall pass” is a mantra worth repeating.
• Stay Disciplined: Ensure your portfolio is properly allocated and rebalance as needed. Don’t let fear drive your decisions.
• Think Long-Term: If your money is earmarked for retirement or other long-term goals, avoid making changes based on short-term events.
• Consider Buying Opportunities: If you have cash on the sidelines and a multi-year time horizon, now may be a good time to put money to work. Trying to “pick the bottom” is nearly impossible, but investing after a pullback can be advantageous.

Looking Ahead: Expect More Stock Market Volatility

As we move further into 2025, expect the market to remain volatile. Political uncertainty, ongoing tariff negotiations, and shifting economic data will continue to create ups and downs. But for patient, disciplined investors, these periods of turbulence are opportunities—not threats.

If you have questions or concerns, reach out to a trusted advisor who understands the market landscape. And remember: the best investment strategy is one that aligns with your goals, risk tolerance, and time horizon—not one that reacts to every headline.

Final Thoughts On Q1 2025

The first quarter of 2025 has reminded us all of the market’s inherent unpredictability. Tariffs, political drama, and sector rotations can rattle even the most seasoned investors. But by focusing on fundamentals, staying invested, and maintaining a long-term perspective, you can weather the storm—and potentially come out stronger on the other side.

So, as you review your portfolio or consider your next move, keep calm, stay disciplined, and remember: this too shall pass.