First Quarter 2025 Review and Outlook
Written by Tim Rigby
The markets had a choppy start to the year. According to The Wall Street Journal, the popular stock indexes posted returns as follows:
Quarter YearThe Dow Jones Average -1.30% -1.30%
The S&P 500 -4.60% -4.60%
The NASDAQ Composite -10.40% -10.40%
Since the quarter ended, President Trump imposed tariffs against trading partners with whom our country runs a deficit. It is not surprising that a market correction has begun in response. These tariffs appear more punitive than reciprocal and the markets have reacted with extreme volatility as the global economy begins to digest their potential implications.
The tariffs that have just been imposed supercede otherwise good current economic news as far as stock and bond prices are concerned. As it has in the past, the bond market has rallied following the upheaval in the stock market. Interest rates have begun to fall which will help companies finance their future growth. Lower rates can help jump start sales of real estate and autos and many other items.
The jobs market is still very good – the economy added 228,000 new jobs in March well above the gain of 140,000 expected. Inflation seems stable but not quite at the 2% level the Federal Reserve is hoping for. Congress is working on a tax and spending bill that hopes to raise revenues while cutting spending. All this could be good pro-growth news if the result is a balanced budget and an end to increasing government deficits. If successful, this could support long-term growth and fiscal stability.
That said, the long-term impact of the tariffs remains uncertain. What happens to the world economy with the imposition of these tariffs and the reaction of our trading partners? Will President Trump’s policy get other countries to open their markets more to our goods, or will it tumble the world into recession? The outcome is not clear at this point which is why the stock market has reacted so violently to the downside.
The large technology companies have been growing quickly so their stock prices were bid up to very high prices, sometimes exceedingly high prices. It is not surprising to see these highly priced tech stocks fall, but when a sell-off like this occurs, all stocks fall sharply, not just the ones that are overpriced. The big technology companies have dropped sharply, but everything else has also declined. This will ultimately give us great buying opportunities.
Our strategy is to invest in great companies when they are reasonably priced so a big decline should be viewed as an opportunity at some point. While it is very painful in the short run, declines can be great times to buy for long-term investors. The best investors stick to their long-term investment plan and continue to invest. Stocks purchased in 2009 during the financial crisis selloff recovered and quite often resulted in very large gains over the next 5 or 10 years.
While the short-term outlook is clouded by the uncertainty surrounding the tariffs, the underlying economic data remains encouraging. For long-term investors, we have seen over time that staying focused on fundamentals and committed to a disciplined strategy remains the most effective approach to growing wealth.
Tim Rigby