Entering 2025, investors were feeling optimistic. After all, the S&P 500 had just delivered back-to-back years of returns over 20%. The Federal Reserve had started easing interest rates, signaling inflation was under control. Plus, excitement around Artificial Intelligence suggested we were heading toward a brighter, more innovative future. Starting out the year, everything was on track, and by mid-February, the S&P 500 had climbed nearly 5%.
However, market sentiment changes quickly. Over the back half of the quarter, stocks dropped sharply, pushing the S&P 500 down more than 10% from highs before the end of the quarter, officially putting the market into a correction. And as of the morning of April 4, stocks are approaching bear market territory (20% drawdown), with the S&P 500 down 16% from the recent peak. This quick downturn brought with it a shift in market dynamics.
Here’s how the first quarter ended:

Since the lows of 2022, market gains have been driven by just a handful of stocks, known as the “Magnificent 7″—Amazon, Alphabet (Google), Apple, Meta (Facebook), Microsoft, Nvidia, and Tesla. Together, these stocks surged 160% over 2023 and 2024, driven mostly by AI excitement. Meanwhile, the other 493 companies in the S&P 500 rose a modest 19%.
Recently, however, these market leaders faced challenges. Investors moved away from high-priced stocks toward stocks trading at more reasonable valuations, causing the Magnificent 7 stocks to drop nearly 15% by quarter end. The other 493 stocks, however, held up, maintaining meager gains. International stocks, which have trailed their US counterparts for more than a decade, did particularly well, beating the S&P 500 by nearly nine percentage points.

The Trump Economy: Uncertainty Takes Center Stage
We’re less than 100 days into the Trump presidency, and the steady, if somewhat unspectacular, path the economy was on has been upended. With a constant stream of new announcements, we can only guess at what the final policies will look like for taxes, deregulation, immigration, and tariffs. Predictability has been thrown out the window and that uncertainty is sending stocks lower.
Of all the coming policy changes, tariffs are the one markets are clearly paying the most attention to, with sweeping levies announced on April 2. At their core, tariffs are just taxes on imported goods. Businesses may pay the taxes but the ultimate bill is paid by everyday consumers who face higher prices. Tariffs are one of many tools countries can use and they can be useful in protecting important industries but used broadly, the cost is borne by everyone else in the economy. Raising tariffs breaks the trend of tariff rates falling since the 1930s.

The recently applied tariffs throw the economy into a state of flux. It will take time to build up industries we are trying to bring back to the USA. In the meantime, businesses must figure out the least expensive ways to source materials and parts. That creates lots of uncertainty about the future. And when businesses struggle to plan ahead, they tend to pull back on hiring and investing. That can cause growth to stall and confidence to fade.
With a flurry of retaliatory measures being announced by the affected countries, this tariff matter is far from settled. There will likely be more escalations and negotiations. We’re still likely closer to the beginning of this story than the end.
Fed: A Wait-and-See Approach
Like many business leaders, the Federal Reserve is playing a waiting game right now but they aren’t necessarily waiting for action in Washington, DC. Instead, they are closely following reports on the economy and inflation.
For now, the economy is on stable footing. The U.S. economy grew 2.8% in 2024, following a similar pace of 2.9% in 2023. As of late March, forecasts suggest growth will slow down a bit to around 1.5%–2.0% in 2025. Slower, yes, but still positive. And with unemployment hovering at a low rate of 4.2%, there’s plenty of reason for cautious optimism.
But inflation is proving tricky. It’s stuck closer to 3% than near the Fed’s target of 2%. Until inflation moves lower or the economy starts to noticeably weaken, expect the Fed to keep interest rates higher for longer, which is unwelcome news for anyone facing a new mortgage for a home purchase.

Admitting I Was Wrong
I feel like I owe you an apology. Ahead of last year’s election—just as I did in 2020 and 2016—I wrote that presidents don’t really move the needle for investors. Today that feels a bit naïve. President Trump hasn’t even been in office three months and it’s nearly impossible to keep up. Stocks are up or down daily on the latest announcement.
What happens next is anybody’s guess. This administration seems bent on tearing down parts of the current economic framework and rebuilding it in its own image. They’ll own whatever comes next, for better or worse. I definitely didn’t see this coming, and I’m hardly alone.
And yet, I’m sure I’ll make a similar point three and a half years from now. Presidents might matter but either way, the direction we expect the economy to go remains the same—upwards. Our country is blessed with consumers who love to spend and some of the most innovative companies on the planet. Business leaders might put things on hold for a bit, but they can’t sit on the sidelines forever if they want to keep their jobs. Hiring will continue and everyone will work hard to earn more profits year in and year out. Throw in the potential of a growing industrial revolution fueled by AI—improving our lives and making businesses more efficient—and it’s hard not to stay optimistic for the long run.
Okay, maybe that’s only half an apology. I’m not suggesting we bury our heads in the sand. Things constantly change, and sometimes faster than we expected. We need to adjust our portfolios as the world evolves.
The cloud of uncertainty we’re in right now will lift eventually, and the stock market has a long history of bouncing back. In the most recent dip, which still could go further, the S&P 500 fell over 16% from its February peak. That doesn’t feel great but it’s still just an average downturn. Since 1980, the S&P has dropped 14.1% each year on average, yet still netted gains over 16,000% over that span. There’s a lot of stress and hand-wringing baked into those numbers. Investing through volatility is a toll that is paid to earn those long-term gains.

Staying balanced might just be more important than ever. It’s nearly impossible not to have strong feelings when you combine politics with your money. We have clients who are very bullish and others who are very bearish right now.
Also, international and value stocks are finding their footing for the first time in years. At the same time, big tech leaders still look poised to succeed. Only time will tell if we’re really going through a shift or if the trends of the past couple years will continue.
But one thing is clear: Diversification paid off in the first quarter, sparing investors from the worst of the losses. Balance isn’t glamorous, but it remains one of the best ways to handle whatever surprises come our way and stay focused on the long term.
This information is believed to be accurate at the time of publication but should not be used as specific investment or tax advice as opinions and legislation are subject to change. You should always consult your tax professional or other advisors before acting on the ideas presented here.
Harvesting the Loss: When Does It Make Sense?
March 26, 2025New World Order? 1st Quarter 2025 Commentary
March 31, 2025Entering 2025, investors were feeling optimistic. After all, the S&P 500 had just delivered back-to-back years of returns over 20%. The Federal Reserve had started easing interest rates, signaling inflation was under control. Plus, excitement around Artificial Intelligence suggested we were heading toward a brighter, more innovative future. Starting out the year, everything was on track, and by mid-February, the S&P 500 had climbed nearly 5%.
However, market sentiment changes quickly. Over the back half of the quarter, stocks dropped sharply, pushing the S&P 500 down more than 10% from highs before the end of the quarter, officially putting the market into a correction. And as of the morning of April 4, stocks are approaching bear market territory (20% drawdown), with the S&P 500 down 16% from the recent peak. This quick downturn brought with it a shift in market dynamics.
Here’s how the first quarter ended:
Since the lows of 2022, market gains have been driven by just a handful of stocks, known as the “Magnificent 7″—Amazon, Alphabet (Google), Apple, Meta (Facebook), Microsoft, Nvidia, and Tesla. Together, these stocks surged 160% over 2023 and 2024, driven mostly by AI excitement. Meanwhile, the other 493 companies in the S&P 500 rose a modest 19%.
Recently, however, these market leaders faced challenges. Investors moved away from high-priced stocks toward stocks trading at more reasonable valuations, causing the Magnificent 7 stocks to drop nearly 15% by quarter end. The other 493 stocks, however, held up, maintaining meager gains. International stocks, which have trailed their US counterparts for more than a decade, did particularly well, beating the S&P 500 by nearly nine percentage points.
The Trump Economy: Uncertainty Takes Center Stage
We’re less than 100 days into the Trump presidency, and the steady, if somewhat unspectacular, path the economy was on has been upended. With a constant stream of new announcements, we can only guess at what the final policies will look like for taxes, deregulation, immigration, and tariffs. Predictability has been thrown out the window and that uncertainty is sending stocks lower.
Of all the coming policy changes, tariffs are the one markets are clearly paying the most attention to, with sweeping levies announced on April 2. At their core, tariffs are just taxes on imported goods. Businesses may pay the taxes but the ultimate bill is paid by everyday consumers who face higher prices. Tariffs are one of many tools countries can use and they can be useful in protecting important industries but used broadly, the cost is borne by everyone else in the economy. Raising tariffs breaks the trend of tariff rates falling since the 1930s.
The recently applied tariffs throw the economy into a state of flux. It will take time to build up industries we are trying to bring back to the USA. In the meantime, businesses must figure out the least expensive ways to source materials and parts. That creates lots of uncertainty about the future. And when businesses struggle to plan ahead, they tend to pull back on hiring and investing. That can cause growth to stall and confidence to fade.
With a flurry of retaliatory measures being announced by the affected countries, this tariff matter is far from settled. There will likely be more escalations and negotiations. We’re still likely closer to the beginning of this story than the end.
Fed: A Wait-and-See Approach
Like many business leaders, the Federal Reserve is playing a waiting game right now but they aren’t necessarily waiting for action in Washington, DC. Instead, they are closely following reports on the economy and inflation.
For now, the economy is on stable footing. The U.S. economy grew 2.8% in 2024, following a similar pace of 2.9% in 2023. As of late March, forecasts suggest growth will slow down a bit to around 1.5%–2.0% in 2025. Slower, yes, but still positive. And with unemployment hovering at a low rate of 4.2%, there’s plenty of reason for cautious optimism.
But inflation is proving tricky. It’s stuck closer to 3% than near the Fed’s target of 2%. Until inflation moves lower or the economy starts to noticeably weaken, expect the Fed to keep interest rates higher for longer, which is unwelcome news for anyone facing a new mortgage for a home purchase.
Admitting I Was Wrong
I feel like I owe you an apology. Ahead of last year’s election—just as I did in 2020 and 2016—I wrote that presidents don’t really move the needle for investors. Today that feels a bit naïve. President Trump hasn’t even been in office three months and it’s nearly impossible to keep up. Stocks are up or down daily on the latest announcement.
What happens next is anybody’s guess. This administration seems bent on tearing down parts of the current economic framework and rebuilding it in its own image. They’ll own whatever comes next, for better or worse. I definitely didn’t see this coming, and I’m hardly alone.
And yet, I’m sure I’ll make a similar point three and a half years from now. Presidents might matter but either way, the direction we expect the economy to go remains the same—upwards. Our country is blessed with consumers who love to spend and some of the most innovative companies on the planet. Business leaders might put things on hold for a bit, but they can’t sit on the sidelines forever if they want to keep their jobs. Hiring will continue and everyone will work hard to earn more profits year in and year out. Throw in the potential of a growing industrial revolution fueled by AI—improving our lives and making businesses more efficient—and it’s hard not to stay optimistic for the long run.
Okay, maybe that’s only half an apology. I’m not suggesting we bury our heads in the sand. Things constantly change, and sometimes faster than we expected. We need to adjust our portfolios as the world evolves.
The cloud of uncertainty we’re in right now will lift eventually, and the stock market has a long history of bouncing back. In the most recent dip, which still could go further, the S&P 500 fell over 16% from its February peak. That doesn’t feel great but it’s still just an average downturn. Since 1980, the S&P has dropped 14.1% each year on average, yet still netted gains over 16,000% over that span. There’s a lot of stress and hand-wringing baked into those numbers. Investing through volatility is a toll that is paid to earn those long-term gains.
Staying balanced might just be more important than ever. It’s nearly impossible not to have strong feelings when you combine politics with your money. We have clients who are very bullish and others who are very bearish right now.
Also, international and value stocks are finding their footing for the first time in years. At the same time, big tech leaders still look poised to succeed. Only time will tell if we’re really going through a shift or if the trends of the past couple years will continue.
But one thing is clear: Diversification paid off in the first quarter, sparing investors from the worst of the losses. Balance isn’t glamorous, but it remains one of the best ways to handle whatever surprises come our way and stay focused on the long term.
This information is believed to be accurate at the time of publication but should not be used as specific investment or tax advice as opinions and legislation are subject to change. You should always consult your tax professional or other advisors before acting on the ideas presented here.
SEE ALSO:
New World Order? 1st Quarter 2025 Commentary, Published by Benton Bragg, CFA, CFP®More About...
The Power of Congruence: Aligning Values, Beliefs, and Actions
Read more
Financial Health: Lessons from the Doctor’s Office
Read more
Your 2024 Year-End Planning Checklist
Read more
FAFSA Changes Are on the Way
Read more
The Best Account of All
Read more