AE Wealth Management Quarterly Market Report for Q1 2025

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Markets started 2025 strong before stumbling amid tariff uncertainties, inflation concerns and economic slowdown. Maintain long-term focus and consult your advisor during this crucial inflection point.

A Strong Start

We closed 2024 on a remarkable high note, with 57 record highs charted throughout the year as markets delivered their best two-year stretch since 1998.^1,2 The enthusiasm carried into 2025 as markets looked ahead to the new administration and policies with potentially positive economic impact.

With all this momentum behind them, markets took off in January.³ This strong start is particularly noteworthy as history suggests that when January delivers positive returns, there’s about a 70% chance of finishing the year in positive territory based on previous numbers.⁴ Traditional energy, financials, defense and small caps — sectors collectively thought of as “Trump trade” — performed especially well as they were viewed as likely beneficiaries of the new administration’s policies.⁵

Once inaugurated in mid-January, President Trump moved with lightning speed, unleashing a flurry of executive actions which quickly unwound previous policies while implementing promised campaign initiatives. As things unfolded, markets focused heavily on three key areas:

• Proposed tariffs on Canada, Mexico and China
• Persistent inflation concerns
• Actions by the Department of Government Efficiency (DOGE)

Markets Stumble

The back-and-forth on tariffs, combined with inflation concerns, created notable market volatility by mid-quarter. February turned particularly sour, erasing many of January’s gains amid fears the Federal Reserve would delay anticipated interest rate cuts.

The volatility continued well into March, prolonged by the uncertainty surrounding tariffs, a looming government shutdown and potential DOGE-related layoffs and disruptions. The chaos weighed heavily on both business investment decisions and consumer confidence, pushing the major benchmark indexes downward.⁶

Equity Performance as of March 31, 2025

Source: Morningstar. Index Performance: Return (%). https://www.morningstar.com/markets?CustId&CLogin&CType&CName&_LPAGE=%2FFORBIDDEN%2FCONTENTARCHIVED.HTML&_BPA=N. Accessed April 1, 2025.

Economic Hurdles

The economy currently sits at a crucial inflection point. Fourth-quarter 2024 gross domestic product (GDP) showed the economy grew by 2.3%, down from the 3.1% reading in the third quarter.^7,8 More concerning, as of late February, the Atlanta Fed was predicting negative growth for the first quarter of 2025 .⁹

Some of the potential contraction stems from a massive surge in imports, particularly industrial supplies, as businesses rushed to import goods ahead of anticipated tariffs.¹⁰ Employment data has also begun to weaken, with the unemployment rate ticking up to 4.1% in February.¹¹ And consumers are showing signs of strain, carrying higher credit card balances with still-high interest rates.¹²

The yield curve remained mostly flat throughout the quarter. The 10-year U.S. Treasury note, which had been approaching 5%, dropped to 4.25% as investors sought safety amid economic uncertainty.¹³

All of this has caused expectations regarding Fed policy to fluctuate significantly.¹⁴ After previously discounting the likelihood of rate cuts, slowing economic data in March revived expectations for possibly three or four rate cuts in 2025. Yet with inflation still stuck at 3%, it remains unclear whether rate cuts would effectively address current economic challenges .¹⁵ The Fed will likely wait for more certainty around tariffs’ potential impact on the economy to make a decision about future cuts.

Looking Ahead

We find ourselves in a precarious position where conditions could just as easily improve as they could deteriorate. If the administration can successfully lower energy costs, reduce regulatory burdens or increase efficiency by cutting government waste, economic prospects could brighten considerably. Much depends on the consumer’s resilience and whether anticipated legislative actions — including the extension or permanent adoption of tax cuts — come to fruition.

The remainder of 2025 will likely be shaped by how quickly tariff uncertainties are resolved, whether productivity gains materialize and if inflation resumes a downward trajectory. While we’re still optimistic markets can turn around, we must acknowledge the very real possibility of economic headwinds over the next several months.

This is an ideal time to review your financial plan and investment allocations with your advisor. Remember to stay focused on the long-term and concentrate on fundamentals. If you haven’t recently, schedule a financial checkup to help ensure your portfolio aligns with your current risk tolerance and rebalance to maintain your target asset allocation. You might also consider harvesting gains and/or losses to help manage your tax situation for the year.

Most importantly, maintain open, two-way communication with your financial advisor. Be clear about your goals, risk tolerance and concerns. They are here to help you navigate these crossroads with confidence and clarity.

SOURCES

¹ Caroline Valetkevitch. Reuters. Dec. 6, 2024. “S&P 500, Nasdaq hit record closing highs; Lululemon gains, data supports rate cut view.” https://www.reuters.com/markets/us/futures-steady-markets-await-november-jobs-data-2024-12-06/. Accessed March 10, 2025.

² Josh Schafer. Yahoo! Finance. Jan. 2, 2025. “Here’s where Wall Street sees stocks heading after the best 2-year stretch since ’97-’98.” https://finance.yahoo.com/news/heres-where-wall-street-sees-stocks-heading-after-the-best-2-year-stretch-since-97-98-211510523.html. Accessed March 10, 2025.

³ Stephen Wisnefski. Investopedia. Jan. 30, 2025. “Markets News, January 30, 2025: Stocks Close Higher as Investors Digest Flurry of Earnings Reports; IBM Soars on AI Strength.” https://www.investopedia.com/dow-jones-today-01302025-8782941. Accessed March 10, 2025.

⁴ Adam Shell. Investor’s Business Daily. Feb. 7, 2025. “Stock Market Investors Hope January’s Gains Herald a Profitable 2025.” https://www.investors.com/etfs-and-funds/mutual-funds/stock-market-investors-hope-januarys-gains-herald-a-profitable-2025/. Accessed March 10, 2025.

⁵ Rachel Christian. Bankrate. Dec. 6, 2024. “The ‘Trump Trade’: What it is and how it impacts the markets.” https://www.bankrate.com/investing/trump-trade/. Accessed March 10, 2025.

⁶ Shannon Pettypiece. NBC News. March 6, 2025. “Trump walks back tariffs on a range of goods from Mexico and Canada for one month.” https://www.nbcnews.com/politics/economics/trump-administration-floats-exemptions-tariffs-canadian-mexican-goods-rcna195110. Accessed March 10, 2025.

⁷ Bureau of Economic Analysis. Jan. 30, 2025. “Gross Domestic Product, 4^th Quarter and Year 2024 (Advance Estimate).” https://www.bea.gov/news/2025/gross-domestic-product-4th-quarter-and-year-2024-advance-estimate. Accessed March 10, 2025.

⁸ Bureau of Economic Analysis. Dec. 20, 2024. “Gross Domestic Product by State and Personal Income by State, 3^rd Quarter 2024.” https://www.bea.gov/news/2024/gross-domestic-product-state-and-personal-income-state-3rd-quarter-2024. Accessed March 10, 2025.

⁹ Jeff Cox. CNBC. Feb. 28, 2025. “The first quarter is on track for negative GDP growth, Atlanta Fed indicator says.” https://www.cnbc.com/2025/02/28/the-first-quarter-is-on-track-for-negative-gdp-growth-atlanta-fed-indicator-says-.html. Accessed March 10, 2025.

¹⁰ Myra P. Saefong. MarketWatch. March 7, 2025. “Gold leads U.S. import surge on tariff fears.” https://www.marketwatch.com/livecoverage/stock-market-today-dow-s-p-500-and-nasdaq-set-for-tentative-gains-after-the-worst-day-of-the-year/card/gold-leads-u-s-import-surge-on-tariff-fears-aNMxFImqP5eKWeB8RRk7. Accessed March 10, 2025.

¹¹ U.S. Bureau of Labor Statistics. March 7, 2025. “Payroll employment rises by 151,000 in February; unemployment rate changes little at 4.1%.” https://www.bls.gov/. Accessed March 10, 2025.

¹² Matt Schulz. LendingTree. March 7, 2025. “2025 Credit Card Debt Statistics.” https://www.lendingtree.com/credit-cards/study/credit-card-debt-statistics/. Accessed March 10, 2025.

¹³ CNBC. “U.S. 10 Year Treasury.” https://www.cnbc.com/quotes/US10Y. Accessed March 10, 2025.

¹⁴ Jason Schenker. Forbes. March 7, 2025. “Tepid February Jobs Report Boosts Odds of a June Fed Interest Rate Cut.” https://www.forbes.com/sites/jasonschenker/2025/03/07/tepid-february-jobs-report-boosts-odds-of-a-june-fed-interest-rate-cut/. Accessed March 10, 2025.

¹⁵ U.S. Bureau of Labor Statistics. Feb. 12, 2025. “Consumer Price Index Summary.” https://www.bls.gov/news.release/cpi.nr0.htm. Accessed March 10, 2025.

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management. This information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security product.

AE Wealth Management, LLC (AEWM) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. The advisory firm providing you this report is an independent financial services firm. AEWM works with a variety of independent advisors. Some of the advisors are Investment Adviser Representatives (IAR) who provide investment advisory services through AEWM. Some of the advisors are Registered Investment Advisers providing investment advisory services that incorporate some of the products available through AEWM.

Information regarding the RIA offering the investment advisory services can be found on https://brokercheck.finra.org/

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