Market Commentary - April 2025

April 2025

First Quarter Recap: Navigating a Volatile Landscape

The First Quarter of 2025 began with promise but ended with heightened uncertainty. After a rocky start continuing December's slide, equity markets rebounded in mid-January. Buoyed by post-election optimism, the S&P 500 surged to new record highs ahead of President Trump’s inauguration and extended gains through most of February.

However, sentiment shifted sharply in late February as market volatility spiked to levels not seen since Q3 2022. Concerns around slowing economic momentum, rising inflation expectations, and the looming threat of Trump-era tariffs led to a marked increase in recession risks.

The First Quarter saw a divergence in equity performance. The Dow Jones Industrial Average was the relative outperformer, ending Q1 down just 1.3%. In contrast, the S&P 500, Nasdaq, Russell 2000, and S&P 400 all experienced 10%+ corrections from YTD highs. The tech-heavy Nasdaq led declines, closing Q1 down 10.4%. Large-Cap Value stocks outpaced Large-Cap Growth, a full reversal from 2024’s trend dominated by the Magnificent Seven. Full Q1 Market Returns can be found in the Market Snapshot Chart below.

Volatility and policy concerns elevated in March and was dominated by a slew of executive actions from the Trump administration, including policy reversals, agency disruptions, and widespread layoffs in the DOGE government sector, as well as rising geopolitical tensions. These actions amplified investor anxiety, pushing the Economic Policy Uncertainty Index to its highest level since the 2008-2009 financial crisis.

International equities were a bright spot in Q1. The MSCI EAFE index climbed 6.2% and MSCI Emerging Markets rose 2.4%, boosted by a 4% decline in the US dollar, which enhanced returns for dollar-based investors, and benefitted diversified portfolios.

As expected, the Federal Reserve maintained its target rate at both Q1 FOMC meetings and reaffirmed its outlook for two rate cuts in 2025. Policymakers cited continued uncertainty surrounding tariffs, persistent inflationary signals, and decelerating growth. The combination puts the Fed in a difficult position balancing its dual mandate of stable prices and maximum employment.  

Bonds had a bumpy start to the year in early January but eventually provided a ballast against stock volatility later in Q1. A flight to safety in late February drove strong gains in fixed income for the balance of the quarter. The Bloomberg Aggregate Bond Index rose 2.9% and the 10-year Treasury yield fell 0.35% to close Q1 at 4.23%, providing a much-needed buffer to diversified portfolios.

 
April Market Update: A Rapid Turn in Sentiment

Volatility re-accelerated in early April after President Trump’s April 2 tariff announcement, which went beyond worst-case expectations and stoked fears of a global trade war. Recession concerns surged and market volatility reached levels last seen at the onset of the COVID-19 pandemic. Recession risk in January was as low as 10% for 2025 with an economic soft-landing the prevailing base case but has now risen to 35%-50%+ by leading forecasters. Concerns about stagflation have risen as well, which is slow/stagnant economic growth, high unemployment, and high or sticky inflation. Thus far, the US overall employment picture has remained encouragingly stable with a low 4.2% unemployment rate. 

There were global ripples, as international markets, which had delivered strong Q1 gains, also felt the impact—highlighting the deep interconnectedness of global markets.

The strong bond rally from March reversed course as Treasuries came under pressure post-tariff announcement, sending yields higher and exposing the vulnerability of the “safe haven” trade to policy-driven inflation risks. Overnight April 8, Treasury yields surged over 4.5% on a confluence of concerns including spiking recession risks.

On April 9, President Trump announced a 90-day pause on reciprocal tariffs, excluding China, following the overnight selloff in US Treasuries. Markets responded with one of the strongest single-day rallies on record, partially recovering losses from the prior week. Stocks finished solidly positive for the week and continued with gains on Monday, April 14, following reciprocal tariff carve-outs for the technology sector over the weekend. The bond market calmed as well, with yields edging lower.  

The Outlook: Volatility Remains the Constant

We continue to emphasize patience and discipline in this uncertain environment. With geopolitical and policy developments evolving rapidly, maintaining a long-term perspective and diversified positioning remains key to navigating the current market landscape.

The Spring 2025 Wealth Asset Advisor – Volatility Edition is packed with helpful perspectives on Dealing with Market Volatility from our investment partners like Dimensional, Vanguard, Capital Group, and Hartford Funds.

Whether we are experiencing periods of optimism, uncertainty, and volatility, it is important investors:

• Remain well-diversified
• Maintain discipline and patience
• Focus on the long-term
• Review your Risk Tolerance

Call your Nelson Advisor today at 800-345-7593 to discuss any concerns and review your portfolio.