The S&P 500 declined 4.6% in the first quarter of 2025, and the Nasdaq shed 10.5%, its worst quarter since 2022. The Trump administration’s announcement of a wave of new tariffs has heightened fears of a global trade conflict.
Markets are reacting to the sweeping scope of the tariffs. Aluminum, steel, and auto tariffs are already in place, and the next round is expected to affect all trading partners.
The potential impact on inflation and supply chains has triggered concerns over corporate margins and consumer demand. The “Magnificent Seven” tech stocks led the Q1 downturn. Tesla fell 36%, and Apple dropped nearly 20%.
Goldman Sachs raises to 35% its odds of a recession in the next year, from 20% previously, due to the broad use of tariffs from the Trump administration
They last put the odds at this level during the rapid monetary tightening of 2022 and the SVB related stress of 2023 pic.twitter.com/UY5Yx2Kxsa
— Nick Timiraos (@NickTimiraos) March 30, 2025
Pressure stems from tariff-related supply disruptions, lofty valuations, and rising regulatory scrutiny. Growth-heavy sectors like tech and consumer discretionary face capital outflows as investors reassess risk-adjusted returns. Energy was Q1’s top performer, rising 9.3% due to geopolitical risk and supply concerns.
Consumer staples also gained traction as investors sought safety in defensives. Financial stocks saw selective interest, driven by M&A speculation.
OOPS! Goldman Sachs has cut its S&P 500 forecast again, citing concerns about slowing growth & rising inflation risks following higher tariff rate expectations. Now expects the index to drop to 5,300 over next 3mths, before recovering to around 5,700 in 9mths and 5,900 in a year. pic.twitter.com/BCWdSbc10k
— Holger Zschaepitz (@Schuldensuehner) March 31, 2025
Goldman Sachs raised its U.S. recession odds to 35%, citing slowing growth and tariff-driven inflation risks. The investment bank also cut its S&P 500 year-end target to 5,700. The Fed faces a complex tradeoff: combat inflation without stifling already-fragile growth.
With the CBOE Volatility Index rising to 22.28, volatility appears entrenched. Traders should focus on quality names with domestic revenue, strong balance sheets, and limited tariff exposure. Selective exposure to energy, staples, and healthcare may offer relative strength.
The S&P 500 is now down 10.7% from its peak on February 19, the biggest drawdown since 2022. This is the 30th correction >5% off of a high since the March 2009 low. They all seemed like the end of the world at the time. $SPX
Video: https://t.co/liXYzJOUl5 pic.twitter.com/djkunLBJe6
— Charlie Bilello (@charliebilello) March 31, 2025
Tariffs impact markets and earnings
M&A and regulatory headlines could add idiosyncratic risks and opportunities. Wall Street strategists continue to cut their stock market forecasts as fears around Trump’s tariffs become more pronounced. Yardeni Research now sees the S&P 500 hitting 6,100 by year-end, below a prior forecast of 6,400.
Goldman Sachs projects the benchmark index will end the year at 5,700, down from its previous estimate. “These estimates incorporate downward revisions to both earnings growth and valuations, reflecting a weaker base case economic growth backdrop, higher uncertainty, and increased recession risk,” Goldman Sachs chief US equity strategist David Kostin wrote. Goldman’s baseline forecast suggests the S&P 500 will bottom this summer, slightly ahead of the trough in economic growth according to their forecasts.
Meanwhile, Yardeni Research president Ed Yardeni now sees a 45% chance the economy tips into recession and the S&P 500 enters a bear market, in which the benchmark index could decline by 20% from its recent all-time high to a level just over 4,900. Yardeni wrote that he’s “losing confidence” that the US economy will remain resilient in the face of “Trump’s reign of tariffs.” He pointed to growing evidence of stagflation, a period characterized by persistent inflation coupled with slow economic growth, already emerging in economic data.
Photo by; Viridiana Rivera on Pexels
