The year has gotten off to a challenging start, with the first quarter of 2025 marking the weakest performance for equities since the third quarter of 2022. However, there are a few silver linings now that we have entered Q2. Below are the April returns for the popular benchmarks that investors track (Data provided by Y-Charts & Commonwealth Financial Network):

S&P 500 Index: -5.8%
Dow Jones Industrial Average: -4.2%
Nasdaq Composite Index: -8.2%
Russell 2000 Index: -7.1%
S&P Target Risk Moderate: -1.44%

As we’ve noted in recent updates, stocks often face headwinds during the first quarter of the year following a presidential election—and 2025 was no exception. Historically, the first quarter of a post-election year ranks second weakest across the entire four-year presidential cycle. On a more positive note, the second quarter has traditionally been a more favorable period for equities.

Much of the market weakness over the past quarter appears to stem from growing concerns about economic uncertainty, particularly the potential impact of tariffs. With new developments emerging almost weekly, keeping track of where things stand can be difficult. The market is grappling with whether this is a short-term negotiation tactic or the beginning of a longer-term shift in trade policy.

Further market volatility is certainly possible if tariffs are a lasting policy change. However, suppose they are primarily being used as a bargaining tool by the current administration, and a resolution is reached in the near term. In that case, we believe the market environment could improve meaningfully—and quickly. If only we all had that crystal ball!

At this time, we are operating under the assumption that the tariff issue is temporary and will ultimately result in an agreement that satisfies both the U.S. and its international trade partners. That said, we remain flexible in our outlook and will adjust our positioning as needed should the situation evolve.

To close, we’d like to highlight some of the optimistic and pessimistic developments we’re observing in the market. Overall, we believe the balance of data currently leans more positive than negative.

 Bullish:

Q2 historical stock performance has been positive
Historical data shows that the majority of corrections do not turn into bear markets
Corporate insiders are actively buying stock during this pullback
Investor sentiment remains extremely negative, which can serve as a contrarian signal
The labor market continues to show resilience and strength

 Bearish:

S&P 500 earnings revisions have fallen to their lowest levels since 2020
Tariff-related uncertainty poses risks to global economic stability
Defensive areas of the market have shown strength recently

We’re encouraged to see a stronger list of positives than negatives at this point, and we’ll continue to track these developments closely.

As always, don’t hesitate to contact our team with any questions.