executive Summary
- S&P 500 recorded its worst quarterly performance since Q3 2022
- Economic, geopolitical and market uncertainty remain high
- S&P 500 Corporate EPS is estimated to increase by 11.5% in CY 2025
- 8 of the 11 large cap sectors are positive ytd
- HY Credit and UST Rates are not reflecting economic contractions
- Federal Reserve Sideline and Project is at low real rates
The first quarter of 2025 has been a period of significant economic, geopolitical and market unrest in the United States. Slowing economic figures, increasing global stress and increasing policy uncertainty contributed to an inadvertent the so -called “Trump Trade”, which increases market volatility, UST yields and American equity market reforms. Uncertainty has increased only with the Federal Reserve on the sideline and the administration emphasizes funding (ie, low rates) on money effects (ie, stock market).
After a total return of 57.8% in the previous two years, marking its best two-year performance since 1998 (26 years), the lead S&P 500 corrected more than 10% in the latter of Q1, which is pledged for the worst trimester (-4.3%) after hiking in Q3 2022.
In addition to the NASDAQ-100 and Nasdaq overall indices, which benefited with greater weight towards large-cap growth in December, major equity indices (S&P 500, Dow Jones Industrial, S&P MIDCAP 400 and Russell 2000) recorded a monthly fall in three out of four months. In mid-February before committing suicide for rotation for sales pressure rotation, there was an increase of large-cap near its cycle high. Today, each major companies have cured at least 10% of their recent high levels, while all are below their respective 200-days simple moving average (SMA).
For most shares outside large-cap growth, the corrective price action began in December, when eight out of 11 large-cap sectors ended in red for an average decline of 7.7%that month ended in red, while all 11 small-cap sectors were finished in red for an average decline of 8.3%. By the end of Q1, 11 larger-cap sectors recorded average 9.7% on average over the high levels of their respective 52-week, while 11 small-cap sectors recorded 17.1% from the high level of their respective 52-week.
From a glass of half full perspective, most large-cap sectors experienced their biggest decline in December and the negative speed has been wandering since then. At the end of Q1, eight out of 11 areas are positive YTD.
While the American equity markets have been correcting their historical gains for the first two years, many foreign economies have been rebounding with fiscal and monetary stimulation and the former economic recession operated in part by a weak US dollar. Measures for China’s excitement include real estate and banking system to issue millions of government workers, high state and local government bonds, expansion of consumer goods trade-works, and a composite increase for budget deficit for the highest time on records since 2010. Europe’s growing fiscal expenses operate to focus on national defense. In particular, Germany is aiming to overhala longer debt regulations and release its “fiscal brake”.
US economic data is cooling during 2025. Housing inventions have increased to east-coved levels, causing concerns, increasing residential construction later this year. The 30-year-old fixed-rate mortgage fell to 6.65% at the end of March, but needs to move less to improve the existing domestic sales that have been hovering over the levels seen for the last time during the Covid and GFC era for two years. While employment seems solid, there are signs between rates, real wages, new fare and average weekly hours that may suggest pressure on the future at unemployment rate. The consent currently projects a 2025 actual GDP of 2%, although widely referred to Atlanta has now projected a large-scale contraction (-2.8%) to the GDPNOW Economic Model for Q1 2025. The forecast of alternative models adjusts for imports and exports of gold projects. A contraction of 0.5%.
The Federal Reserve stopped its rate cut cycle with the chair Powell, confirming the fed in “no green” to cut rates in the most recent march FOMC. Fed’s quarterly SEP (March) estimated low growth (GDP 2.1%to 1.7%) and high inflation (core-PCE (from 2.5%to 2.8%), but kept only two 25bp rates, kept its FFR guidance continuously at 3.9%. Fed said that the economy is in good condition, but the economy and its future estimates are also insisted on the growing uncertain. The monetary policy of the fed is very tight, which creates an effect of a passive tightening by waiting for bad news, which puts additional stress on the cyclical areas of the market.
looking ahead
The entire Q1 has received hopes of corporate income and revenue. According to FactSet, CY 2025 has fallen by 14.8% for CY 2025 to increase the S&P 500 income for 2025, while the estimated revenue has fallen from 5.8% to 5.4%. For Q1 2025, analyst project S&P 500 EPS growth is 7.3% and 4.2% revenue growth. The 12-month PE ratio of S&P 500 is currently 20.5 in 2024, but is below 21.5 in 2024, but 19.9 and 18.3, above 5-year and 10-year average respectively.
2 April of administrationRa “Liberation Day” implements a series of tariffs on imports. These tariffs are designed to be widespread-based and mutual, which match the duties charging on American products in other countries. This contributed to advanced uncertainties for capital markets as the nuances developed and resulted in unclear effects remained unclear.
While markets hate uncertainty, it is due to assuming that a lot of risk is already priced in the stock market that may be close to below compared to continuing meaningfully. Power in foreign equity markets depicting more monetary and fiscal stimulation supports improvement in a global development approach. Long UST yields with a yield of UST 10-year at the end of Q1 is 4.25% with a yield of UST 10-year, above the 2024 momp of 3.6%, which the rates of rates suggest that the market suggests that the current is not afraid of recession. Hy Credit spread (below chart) is widely widened in 2025 and is much below the level of the pre -recession.
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