After closing out 2024 at record highs, U.S. equity markets had a challenging first quarter. The domestic market rally lost steam by mid-February as inflation proved more stubborn than expected, prompting the Federal Reserve to adopt a noticeably more hawkish stance. Hopes for multiple rate cuts dimmed and renewed tariff threats only added fuel to the fire.
The back-and-forth pronouncements on tariffs clouded the outlook for global commerce and underscored the one thing Wall Street loathes most: uncertainty. U.S. Large Cap, as measured by the S&P 500 Index, was down 4.27% for the quarter. Small-cap stocks were even more impacted by the economic uncertainty, down 9.48% by the quarter’s end.
International equity markets performed decidedly better, with international developed markets, as measured by the MSCI EAFE Index, up 6.86%, and the MSCI Emerging Markets Index in positive territory as well. Real estate and fixed income offered further bright spots in an otherwise volatile quarter, up 1.17% and 2.78%, respectively.
Index
1Q 2025
S&P 500 Total Return
-4.27%
Russell 2000 Total Return
-9.48%
MSCI EAFE Net Total Return
6.86%
MSCI Emerging Markets Net Total Return
2.93%
Dow Jones US Real Estate Index Total Return
1.17%
Bloomberg US Aggregate
2.78%
Source: YCHARTS
Entering the second quarter, market volatility has increased dramatically as the Trump administration’s agenda has become more evident. The sheer scope of the actions of DOGE and President Trump’s multi-faceted tariff policy has seemingly caught the investment community by surprise. In a reversal of leadership, the Magnificent 7 declined over 15% in the first quarter while the equal-weight S&P 500 was down 1%. So far this quarter, this trend appears to be persisting.
Tariff Uncertainty
In the complex dynamics of global trade, few policy tools generate as much debate as tariffs. Simply defined, a tariff is a tax imposed by one country on goods imported from another. Governments often use tariffs to protect domestic industries, punish trading partners, or address trade imbalances. But while the intentions behind tariffs may be strategic or political, their impact on the stock market is by no means straightforward.
The latest policy shift from the Trump administration — the introduction of sweeping new tariffs on U.S. imports — has sent ripples through the global markets. At the core of the new tariff regime is the Trump Administration’s stated objective to rebalance the United States’ economic equilibrium globally. President Trump has long expressed concerns about persistent trade imbalances, currency manipulation, national defense/dependence regarding foreign countries, and ballooning fiscal deficits that, in his opinion, were the result of existing trade policies. In light of this new regime, investors are left to weigh both the risks and potential advantages of such broad changes.
Possible Risks
Higher Costs and Lower Profits for Companies- Tariffs raise the cost of imported goods, and for companies that rely on global supply chains, this can translate directly into higher input costs. When companies pay more for materials, parts, or finished goods, profit margins shrink unless they pass those costs on to consumers – something not always possible in competitive markets. Lower corporate profits often mean lower stock valuations.
Global Trade Tensions and Retaliation. When one country imposes tariffs, others often retaliate. A tit-for-tat trade war creates instability in global commerce, particularly for export-heavy industries like technology, manufacturing, and agriculture. Companies facing shrinking international markets or blocked access to foreign consumers often see their stock prices decline in anticipation of weaker future earnings.
Reduced Business Investment and Consumer Confidence. The threat of tariffs injects uncertainty into future planning. Businesses may delay capital investment or hiring if they are unsure how trade rules will evolve. Meanwhile, consumers facing higher prices on everyday goods – from cars to electronics – may scale back spending. Both trends signal slower economic growth, a red flag for investors.
Possible Advantages
Boost to Domestic Industries. Tariffs can protect local companies from foreign competition, giving them a price advantage in the domestic market. For example, if imported steel becomes more expensive due to tariffs, American steel producers may benefit from higher demand and pricing power. Stocks in these sectors can rise on expectations of stronger earnings.
National Security and Supply Chain Resilience. Investors may view tariffs as a long-term positive if they encourage more resilient and diversified supply chains. Recent global events – from pandemics to geopolitical conflicts – have shown the risks of overreliance on foreign manufacturing. Tariffs that support reshoring or the development of domestic alternatives may be welcomed by markets seeking stability.
Government Support and Subsidies. Tariffs are often paired with domestic stimulus to offset short-term pain. For example, governments may support affected industries with tax breaks or subsidies. Such policies can reassure investors that the government is willing to protect national champions or key sectors, leading to renewed confidence in a company’s future outlook.
Worry vs. Uncertainty
Markets are influenced by expectations, especially in the short run. Investors expect recessions, inflation, interest rate changes, and even geopolitical conflicts. These events cause worry – but not necessarily panic – because they are routinely measured, modeled, and priced into stock valuations.
Icon investor Sir John Templeton said, “stocks climb a wall of worry.” Even when headlines look grim, markets can remain orderly if investors believe the situation is temporary, controlled, or ultimately manageable.
Uncertainty, however, is another story. When investors lack the ability to predict outcomes or gauge the rules of the game – such as in the case of the recent tariff announcements, shifting trade policies, or breakdowns in international agreements – they hesitate. This pause can lead to market pullbacks, sharp volatility, or even prolonged downturns.
Tariffs are neither inherently good nor bad for the stock market. Their impact depends on magnitude, timing, context, and investor perception. They can harm international growth prospects or bolster domestic industries. They can cause painful disruptions or inspire long-term reform. But the key for investors is not whether tariffs exist – it’s whether the rules surrounding them are known and consistent.
What are We Doing Now?
In uncertain environments like this, having a proactive strategy is essential. We are taking several deliberate steps to help protect and position client portfolios such as:
Monitoring Policy Developments: We are closely tracking legislative and geopolitical developments to assess potential impacts and identify opportunities in real time.
Rebalancing Portfolios: Market fluctuations can shift portfolio allocations. Where appropriate, we are rebalancing to maintain target risk exposures and capitalize on undervalued areas.
Tax-Loss Harvesting: We are strategically capturing losses in taxable accounts where appropriate to offset future gains and enhance after-tax returns.
Utilizing the “Dry Powder” of Fixed Income: Our allocation to high-quality bonds aims to provide both a ballast during equity volatility and optionality — giving us the flexibility to deploy fixed income capital as we seek attractive equity entry points.
Navigating the Storm
In times of uncertainty, having a disciplined strategy is far more impactful and dependable than the fool’s errand of trying to predict outcomes. Our advice:
Don’t Panic, Do Prepare: Volatility often creates opportunity. Your personal circumstances inform your financial plan and portfolio allocation, so please reach out to discuss any changes in your circumstances or any concerns about your portfolio.
Stay Diversified: Global diversification across asset classes, sectors, and geographies can be one of the best defenses against volatility, certainly in uncertain policy environments like these.
Be Patient, but Proactive: We believe this will be a transitional period. Once the market digests and prices in the implications of these policies — including potential retaliatory measures from trade partners or concessions made by the Trump Administration — we expect greater stability and clearer vision going forward.
Downturns do not Necessarily Mean Down Years: Stock market declines over a few days or months may lead investors to anticipate a down year. But the US stock market has had positive annual returns in many years despite some notable dips. It is important to remember that the S&P 500 has experienced average intra-year declines of 14.1% since 1980, yet annual returns were positive in 34 of 45 years. This demonstrates the market’s ability to recover and deliver long-term gains despite periodic times of volatility. Sharp declines are often followed by sharp recoveries like we saw in 2020.
Final Thoughts
This new era of tariffs may very well redefine U.S. trade policy. Whether you view it as overdue global trade rebalancing or risky protectionism, one thing is clear: the markets are adjusting to a major shift. At Wealth Dimensions our priority is to keep you informed, well-positioned, and confident regardless of the headlines.
For our clients, the value of financial advice becomes especially clear in times of uncertainty, as a well-structured plan can help investors navigate market volatility with confidence. We implement a disciplined approach to managing assets, ensuring a balanced allocation that aligns with both short-term liquidity needs and long-term growth objectives.
As always, we are here to discuss your portfolio, evaluate your strategy, and help you turn uncertainty into opportunity.
Thank you for your continued confidence in our services.
– The Wealth Dimensions Team
Indices themselves are not investible products.
The S&P 500® Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 large publicly traded companies in the U.S.
The Russell 2000® Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index.
The MSCI EAFE Index is an equity index which captures large and mid-cap representation across 21 Developed Markets countries around the world, excluding the US and Canada.
The MSCI Emerging Markets Index captures large and mid-cap representation across 24 Emerging Markets (EM) countries.
The Bloomberg Aggregate Bond Index or “the Agg” is a broad-based fixed-income index which broadly tracks the performance of the U.S. investment-grade government and corporate bonds.
For informational purposes only. Not intended as investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000. Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.
Quarterly Commentary: First Quarter 2025
After closing out 2024 at record highs, U.S. equity markets had a challenging first quarter. The domestic market rally lost steam by mid-February as inflation proved more stubborn than expected, prompting the Federal Reserve to adopt a noticeably more hawkish stance. Hopes for multiple rate cuts dimmed and renewed tariff threats only added fuel to the fire.
The back-and-forth pronouncements on tariffs clouded the outlook for global commerce and underscored the one thing Wall Street loathes most: uncertainty. U.S. Large Cap, as measured by the S&P 500 Index, was down 4.27% for the quarter. Small-cap stocks were even more impacted by the economic uncertainty, down 9.48% by the quarter’s end.
International equity markets performed decidedly better, with international developed markets, as measured by the MSCI EAFE Index, up 6.86%, and the MSCI Emerging Markets Index in positive territory as well. Real estate and fixed income offered further bright spots in an otherwise volatile quarter, up 1.17% and 2.78%, respectively.
Source: YCHARTS
Entering the second quarter, market volatility has increased dramatically as the Trump administration’s agenda has become more evident. The sheer scope of the actions of DOGE and President Trump’s multi-faceted tariff policy has seemingly caught the investment community by surprise. In a reversal of leadership, the Magnificent 7 declined over 15% in the first quarter while the equal-weight S&P 500 was down 1%. So far this quarter, this trend appears to be persisting.
Tariff Uncertainty
In the complex dynamics of global trade, few policy tools generate as much debate as tariffs. Simply defined, a tariff is a tax imposed by one country on goods imported from another. Governments often use tariffs to protect domestic industries, punish trading partners, or address trade imbalances. But while the intentions behind tariffs may be strategic or political, their impact on the stock market is by no means straightforward.
The latest policy shift from the Trump administration — the introduction of sweeping new tariffs on U.S. imports — has sent ripples through the global markets. At the core of the new tariff regime is the Trump Administration’s stated objective to rebalance the United States’ economic equilibrium globally. President Trump has long expressed concerns about persistent trade imbalances, currency manipulation, national defense/dependence regarding foreign countries, and ballooning fiscal deficits that, in his opinion, were the result of existing trade policies. In light of this new regime, investors are left to weigh both the risks and potential advantages of such broad changes.
Possible Risks
Higher Costs and Lower Profits for Companies- Tariffs raise the cost of imported goods, and for companies that rely on global supply chains, this can translate directly into higher input costs. When companies pay more for materials, parts, or finished goods, profit margins shrink unless they pass those costs on to consumers – something not always possible in competitive markets. Lower corporate profits often mean lower stock valuations.
Global Trade Tensions and Retaliation. When one country imposes tariffs, others often retaliate. A tit-for-tat trade war creates instability in global commerce, particularly for export-heavy industries like technology, manufacturing, and agriculture. Companies facing shrinking international markets or blocked access to foreign consumers often see their stock prices decline in anticipation of weaker future earnings.
Reduced Business Investment and Consumer Confidence. The threat of tariffs injects uncertainty into future planning. Businesses may delay capital investment or hiring if they are unsure how trade rules will evolve. Meanwhile, consumers facing higher prices on everyday goods – from cars to electronics – may scale back spending. Both trends signal slower economic growth, a red flag for investors.
Possible Advantages
Boost to Domestic Industries. Tariffs can protect local companies from foreign competition, giving them a price advantage in the domestic market. For example, if imported steel becomes more expensive due to tariffs, American steel producers may benefit from higher demand and pricing power. Stocks in these sectors can rise on expectations of stronger earnings.
National Security and Supply Chain Resilience. Investors may view tariffs as a long-term positive if they encourage more resilient and diversified supply chains. Recent global events – from pandemics to geopolitical conflicts – have shown the risks of overreliance on foreign manufacturing. Tariffs that support reshoring or the development of domestic alternatives may be welcomed by markets seeking stability.
Government Support and Subsidies. Tariffs are often paired with domestic stimulus to offset short-term pain. For example, governments may support affected industries with tax breaks or subsidies. Such policies can reassure investors that the government is willing to protect national champions or key sectors, leading to renewed confidence in a company’s future outlook.
Worry vs. Uncertainty
Markets are influenced by expectations, especially in the short run. Investors expect recessions, inflation, interest rate changes, and even geopolitical conflicts. These events cause worry – but not necessarily panic – because they are routinely measured, modeled, and priced into stock valuations.
Icon investor Sir John Templeton said, “stocks climb a wall of worry.” Even when headlines look grim, markets can remain orderly if investors believe the situation is temporary, controlled, or ultimately manageable.
Uncertainty, however, is another story. When investors lack the ability to predict outcomes or gauge the rules of the game – such as in the case of the recent tariff announcements, shifting trade policies, or breakdowns in international agreements – they hesitate. This pause can lead to market pullbacks, sharp volatility, or even prolonged downturns.
Tariffs are neither inherently good nor bad for the stock market. Their impact depends on magnitude, timing, context, and investor perception. They can harm international growth prospects or bolster domestic industries. They can cause painful disruptions or inspire long-term reform. But the key for investors is not whether tariffs exist – it’s whether the rules surrounding them are known and consistent.
What are We Doing Now?
In uncertain environments like this, having a proactive strategy is essential. We are taking several deliberate steps to help protect and position client portfolios such as:
Monitoring Policy Developments: We are closely tracking legislative and geopolitical developments to assess potential impacts and identify opportunities in real time.
Rebalancing Portfolios: Market fluctuations can shift portfolio allocations. Where appropriate, we are rebalancing to maintain target risk exposures and capitalize on undervalued areas.
Tax-Loss Harvesting: We are strategically capturing losses in taxable accounts where appropriate to offset future gains and enhance after-tax returns.
Utilizing the “Dry Powder” of Fixed Income: Our allocation to high-quality bonds aims to provide both a ballast during equity volatility and optionality — giving us the flexibility to deploy fixed income capital as we seek attractive equity entry points.
Navigating the Storm
In times of uncertainty, having a disciplined strategy is far more impactful and dependable than the fool’s errand of trying to predict outcomes. Our advice:
Don’t Panic, Do Prepare: Volatility often creates opportunity. Your personal circumstances inform your financial plan and portfolio allocation, so please reach out to discuss any changes in your circumstances or any concerns about your portfolio.
Stay Diversified: Global diversification across asset classes, sectors, and geographies can be one of the best defenses against volatility, certainly in uncertain policy environments like these.
Be Patient, but Proactive: We believe this will be a transitional period. Once the market digests and prices in the implications of these policies — including potential retaliatory measures from trade partners or concessions made by the Trump Administration — we expect greater stability and clearer vision going forward.
Downturns do not Necessarily Mean Down Years: Stock market declines over a few days or months may lead investors to anticipate a down year. But the US stock market has had positive annual returns in many years despite some notable dips. It is important to remember that the S&P 500 has experienced average intra-year declines of 14.1% since 1980, yet annual returns were positive in 34 of 45 years. This demonstrates the market’s ability to recover and deliver long-term gains despite periodic times of volatility. Sharp declines are often followed by sharp recoveries like we saw in 2020.
Final Thoughts
This new era of tariffs may very well redefine U.S. trade policy. Whether you view it as overdue global trade rebalancing or risky protectionism, one thing is clear: the markets are adjusting to a major shift. At Wealth Dimensions our priority is to keep you informed, well-positioned, and confident regardless of the headlines.
For our clients, the value of financial advice becomes especially clear in times of uncertainty, as a well-structured plan can help investors navigate market volatility with confidence. We implement a disciplined approach to managing assets, ensuring a balanced allocation that aligns with both short-term liquidity needs and long-term growth objectives.
As always, we are here to discuss your portfolio, evaluate your strategy, and help you turn uncertainty into opportunity.
Thank you for your continued confidence in our services.
– The Wealth Dimensions Team
Indices themselves are not investible products.
The S&P 500® Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 large publicly traded companies in
the U.S.
The Russell 2000® Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index.
The MSCI EAFE Index is an equity index which captures large and mid-cap representation across 21 Developed Markets countries around the world, excluding the US and Canada.
The MSCI Emerging Markets Index captures large and mid-cap representation across 24 Emerging Markets (EM) countries.
The Bloomberg Aggregate Bond Index or “the Agg” is a broad-based fixed-income index which broadly tracks the performance of the U.S. investment-grade government and corporate bonds.
For informational purposes only. Not intended as investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000. Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.