First Quarter 2025
This quarters recap: Tariffs, Volatility, Climbing Indexes, and Rate Cut
First Quarter 2025: Economic Review
A review of Q1 2025, Presented by The PensionmarkMeridien Team
It has been a quarter of tariff-induced uncertainty and shifting sentiment across U.S. financial markets. As such, now is the perfect time to share an overview of what has occurred and what might be ahead. Read on for a summary of the first quarter, full of the information you need to know.
MAJOR U.S. STOCK INDEXES
The S&P 500 began 2025 on strong footing until tariffs were imposed in February, with the index closing the quarter well off its February highs.
Here’s how major U.S. stock indexes fared in the first quarter:
- The S&P 500 declined by 4.59%1.
- The NASDAQ 100 fell by 8.25%2.
- The Dow Jones Industrial Average decreased by 1.28%3.
TRADE TENSIONS & DIVERSIFICATION
First things first: tariffs. It appears that we are in a transition period as the Trump administration has decided to endure shorter-term economic difficulties to pursue long-term benefits.
These policy changes can be a source of anxiety for some, especially given the ongoing market volatility over the last month and a half. However, there is the possibility that central banks could step in to provide stability, according to some strategists, potentially creating opportunities in the bond market for certain investors.
Being diversified is essential for all long-term investors. Markets do not go up in a straight line, but investors may have gotten accustomed to that type of market environment in recent years. (We have been fortunate!) Dividend-paying industrials weathered the Q1 storm well, as highlighted above. (Look at the Dow Jones Industrial Average!). For a summary of where the U.S. stands tariff-wise, check out this tariff tracker4.
INFLATION
We saw a bit of a mixed picture for inflation data in the first quarter:
CONSUMER PRICE INDEX:
CPI readings showed mixed5 data in the first quarter, with consumer inflation climbing from December through February and then falling in March. The highest month-over-month CPI increase for Q1 occurred in February, which approximately aligned with the S&P 500 reaching its peak for the quarter. The yearly CPI inflation rate was 2.8% in March’s reading, coming down from the 3.0% reading in February. The Fed’s target inflation goal on an annual basis is 2.0%.
PRODUCER PRICE INDEX:
PPI data also appeared mixed in Q1. In February (March data release), the PPI for final demand demonstrated a year-over-year increase of 3.2%6. On the other hand, Core PPI, which excludes food and energy, experienced a slight decline of 0.1%, the first negative reading since July. Reviewing wholesale inflation for the quarter as a whole, mixed is the word. And PPI featured a couple of upward revisions to the previous month’s data during the quarter.
LABOR MARKET / PAYROLLS
The U.S. labor market showed signs of cooling in the first quarter as tariff uncertainty tested its resilience.
SLOWING JOB GROWTH:
While the labor market remained strong, job growth began to slow, with non-farm payrolls increasing by 151,0007 in February (March data release). This was less than expected, following a downward revised 125,000 gain in January.
The current consensus on the labor market is uncertain and a bit sour, as inflation expectations over the next year have been rising in the consumer’s eyes. The labor shortage persists, however, and is real. So, we seem to be at a juncture of expectations (or fear) versus long-term resilience.
Of course, there are new uncertainties in play courtesy of trade tensions and their unknown ultimate effects, as evidenced by one out of four CFOs scaling back their hiring plans.
UNEMPLOYMENT RATE
American unemployment remains within the recent healthy range for the first quarter, although data shows that more Americans are worried about it. The unemployment rate rose to 4.1% in February 2025, up from 4.0% in January.
FED, RATE CUT PROBABILITIES
During the first three months of 2025, the Federal Reserve kept the overnight lending rate unchanged8. Minutes from the January Fed meeting revealed that policymakers were concerned about the potential inflationary impact of new tariffs, prompting a cautious approach toward rate cuts.
Throughout the first quarter, the Fed revised its economic outlook, lowering its 2025 growth forecast while raising its inflation projection. Despite the growing uncertainty, officials maintained a “wait and see” stance, signaling the possibility of two rate cuts later in the year.
As of the final trading day of Q1, market probabilities reflected an 85.5% chance that rates would remain unchanged at the upcoming May Fed meeting. Looking further ahead, futures markets indicated a 64.3% chance of a quarter-point cut in June, as of the March 31st market close. Some analysts are also eyeing July as a potential turning point, with the possibility of multiple rate cuts on the horizon.
To read what we had to say on the April 2nd Tariff Announcements <click here>
UNHAPPY CONSUMERS
Consumers are becoming increasingly hesitant in the current economic environment. After enduring years of financial uncertainty and volatility, it appears they may have reached an inflection point. In the first quarter of 2025, key indicators of U.S. consumer health showed significant deterioration. The Conference Board Consumer Confidence Index dropped from 104.1 in January to 92.9 in March. More notably, the Expectations Index fell to 65.2 — well below the recession threshold of 80 — signaling deepening pessimism about the future. Similarly, the University of Michigan Consumer Sentiment Index declined sharply to 57.0 in March9, marking an 11.9% decrease from February. This drop was largely driven by inflation concerns, with one-year inflation expectations climbing to 5.0%.
INTERNATIONAL EXPOSURE / EUROPE
Some investors are turning their attention to Europe as a way to navigate the current uncertainty in the U.S. market. With economic and policy shifts creating volatility at home, looking abroad—particularly to more stable or differently positioned markets—can offer new opportunities and a potential hedge against domestic risks. One of the key reasons to consider this move is diversification. Effective diversification isn’t limited to sectors or asset classes; it can and should include geographic exposure as well. For those considering international diversification, there are several strategies available to help balance risk and capture growth potential across global markets.
A REMINDER ON LONG-TERM DISCIPLINE
It has been an eventful and uncertain quarter in the financial markets. Essentially, the highs in the S&P 500 coincided with the high print in CPI for the quarter, and sentiment dissipated as tariffs were imposed. We have been here before. Well, not exactly here, but close enough. Markets absorb events and changes, such as the pandemic and inflation spikes. Let’s remember that these imposed tariffs were not unexpected like the pandemic; they were announced well in advance, despite the many daily twists and turns that occurred during their rollout.
Market sentiment is on the extreme fear end of the spectrum at the time of writing. Market corrections can be healthy, and certain long-term investors may find opportunities in the present equities landscape that did not exist just a mere two months ago.
THAT’S ALL, FOLKS!
With the above quarterly recap noted, how are things going in your neck of the woods? If first-quarter market developments, further diversification, or if anything else is on your mind, please feel free to email or call us!
We are always here as a resource for you!
If you have questions about any of the topics covered here—or about something you’ve recently seen in the news and how it may impact your investments or retirement strategy, we’re here to help! Reach out to us at (866) 871-9963 or email us at MeridienTeam@pensionmark.com.
We’re here to help you navigate with clarity and confidence.
Please consult your financial professional for additional information.
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.
Citations:
1.Trading View, April 1, 2025
2.Trading View, April 1, 2025
3.Trading View, April 1, 2025
4.Reed Smith, LLP, April 7, 2025
5.Forex Factor, April 2025
6.S. Bureau of Labor Statics, March 13, 2025
7.CNBC, March 7, 2025
8.Trade Economics, 2025
9.CNBC, March 28, 2025
Advisory services offered by Pensionmark Financial Group, LLC. Securities offered by Pensionmark Securities, LLC, member FINRA/SIPC. Pensionmark Financial Group, LLC is affiliated through common ownership with Pensionmark Securities, LLC.