My poppy and I would often start our float trips at the Horse Creek boat ramp, where the water is really fast, making it difficult not to be pushed into the river bank as soon as we started. Those choppy waters right in the beginning are what investors are experiencing this year.
Though US stock markets entered the year with near all-time highs, they suffered losses in the first quarter ending March 31st. The large-cap S&P 500 Index slipped 4.3%, and the small-cap Russell 2000 Index lost more than 9%. However, there were gains to be had in other asset classes, such as the international stock-heavy MSCI EAFE Index, which returned a positive 7%, demonstrating the power of diversification.
It would be easy to make a political statement here, but the reality is the recent stock sell-off hasn’t been driven by one event but by a mixture of negative feelings about earnings expectations, tariffs, consumer sentiment, and weakening economic conditions.
Tech Stocks
Tech stocks were hit the hardest in the first quarter drawdown. The tech-heavy Nasdaq index, which made over 80% in the past two years, fell by over 10% in the first quarter. More specifically, tech giants such as Tesla lost over 35%, Broadcom fell more than 27%, and AI chip company NVIDIA dropped almost 20%. The much-hyped tech stocks, which have been propelling the overall market since the pandemic, saw strong selling activity because of concerns over excessive AI spending, high valuations, and increasing profitability doubt.
Outlook
The overall economic situation has weakened more than expected, forcing companies to reevaluate their growth expectations for the year and affecting corporate earnings. Most analysts predicted 2025 to be another year of above-average growth for the US economy. However, the first quarter revealed a different storyline.
In January, consumer spending dropped for the first time in two years. The recent University of Michigan consumer survey showed that two-thirds of Americans believe the unemployment rate is about to go up. Inflation isn’t any better, either. The Fed’s preferred inflation gauge showed core prices increased 2.8% in February, up from January.
After the first quarter events, Goldman Sachs has downgraded its growth forecasts for the S&P 500 to 3% this year, down from 7%.
Summary
Thankfully, most accounts I manage are nearly flat after I moved them near the peak into some downside hedges. I expect the second quarter to be similar to the first quarter because the market issues still linger. It is concerning that President Trump’s tariff policy, which could be good in the long term, will make the market pain points worse in the short term. This is why I expect the market volatility to continue over the next few months, with the S&P 500 potentially hitting bottom this summer.
I still see potential for the S&P 500 to move up 11% by the end of 2025, from where it ended the first quarter. For that to happen, it will need help from the largest stocks in the market in the tech sector.
I smile now as I remember my Poppy, seeing the fear in my young eyes, would say, “Don’t worry, son, you know the water smoothes out just around the corner.” I still take my kids floating at the Horse Creek ramp, and now I am the one calming the kids. Investing is sometimes like that float trip; a rough start doesn’t mean the whole trip will be nerve-wracking. Things will smooth out around the corner.
Have a blessed week!
Securities and advisory services are offered through LPL Financial, a registered investment advisor and member of FINRA/SIPC.
Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly.
The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.
Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.
