April 15, 2025

First Quarter Highlights

Financial Markets

  • S. equity markets were volatile with new highs set early in the quarter and indices falling into correction territory later in the period as a cheaper Chinese artificial intelligence (AI) model upset the AI enthusiasm and trade policy uncertainty dragged prices lower. Foreign equities outperformed the U.S. boosted by stimulus plans.
  • Bond yields fell as economic growth worries intensified. The U.S. dollar weakened almost 4%.

Overview of the Economy

  • Earnings reports for the fourth quarter were generally strong with earnings for the S&P 500 companies up 18% over the prior year. S. gross domestic product (GDP) growth of 2.4% outpaced other economies such as the Eurozone which had GDP growth of 0.2%.  Both figures were lower than in the third quarter.
  • The inflation rate slowed slightly in the U.S. and Europe but rose in Canada and Japan.
  • Surveys of U.S. business and consumer confidence weakened sharply during the quarter on concerns that tariff policy will spur stagflation. However, hard data, such as the number of new jobs created, wage growth, industrial production, retail sales growth, and a pick-up in existing home sales, indicate the economy is still solid even though there may be some slowing to prepandemic levels.  Some improvement was reported in other regions, such as the Eurozone manufacturing purchasing managers index (PMI) hitting a two-year high.
  • China’s economy remains mixed with retail sales up 4% from a year ago, but the unemployment rate is up to the highest in two years and property development investment continuing its slump down 10% from a year ago.

Notable Events

  • Tariff related news rattled sentiment and financial markets.  The U.S. imposed tariffs on imports from Mexico, Canada, and China and on steel, aluminum, and autos.  But the announcements slated for April 2 and threats of retaliatory actions drove a spike in uncertainty and worries about higher inflation and slower global growth.