Quarterly Market Update 3.31.2025
Greetings Scott Campbell your 401k investment advisor.
I am interrupting my regularly scheduled market update for the first quarter of 2025 with the following stock market alert.
The last few days have been rough days in the stock market. The market has dropped substantially both days. But not to worry, this to shall pass. As I say every time the market drops – you are buying great investments at super low prices. The market has recovered from every correction. This correction is no different.
Please read the rest of this update for more information and read the article below regarding tariffs.
Back to my regularly scheduled market update for the first quarter 2025.
So much for the positive outlook for the first quarter of 2025. Both from a seasonal and a specific perspective.
The U.S. stock market was down -4.84% in the first quarter of 2025. However, bonds acted very old school and produced positive returns counter to the negative returns in equities. The aggregate bond index was up 2.92% in the first quarter.
The performance in the U.S. stock market over the past several quarters has been driven by a small number of big tech companies known as the mag seven. The mag seven is: Invidia, Alphabet, Amazon, Apple, Meta, Microsoft, and Tesla. These stocks produced returns significantly greater than the market.
However, these stocks have been taking a breather for the past few weeks. As they drove the market higher, they are taking the market lower. But these companies are not collapsing. The opposite is true. AI is in its infancy. Not to worry, the current market slide is a normal market correction. These stocks, and all stocks will recover as they always have.
The media is doing what they do, which is attempt to create and fear and concern, which generates clicks and advertising revenue. Same as always.
The big problem I have with their presentation is the use of the words “lose and lost”. These are not accurate terms. When the market drops, that is the price of stocks dropping. If you have 100 shares of stock in your account and the market crashes, you still have 100 shares of stock. It’s just the price per share has dropped.
Of course, they seldom mention that the price drop is fantastic news for 401(k) investors. The talk on the investment chat shows for the past year has been how expensive the mag seven stocks have been. Not anymore. They, and every stock, are on sale. 401(k) investors benefit from the low prices every pay day, when their 401(k) contributions are invested. And they buy more stock with the same contribution.
Tariffs are causing tremendous volatility in the stock market.
Please see my article below regarding reciprocal tariffs.
Reciprocal trades are used to eliminate foreign tariffs on U.S. imports.
Tariffs in general are used to level trade between the U.S. and foreign countries which will create more manufacturing and jobs here in the U.S. The U.S. has lost many manufacturing jobs over the last 20 years.
The trade imbalance between the U.S. and foreign countries is almost $1 trillion. That means we import almost $1 trillion more goods than we export.
Most foreign countries have tariffs on the U.S. products imported into their countries. This makes American products too expensive for the consumers in these countries.
Tariffs level the playing field for our products all over the world. Which will increase production here in the U.S. and bring more manufacturing jobs.
Food and energy, for the most part, are not being tariffed. So, the idea that tariffs will have a huge impact on core inflation is questionable.
The tariffs are beginning to work as countries are dropping their tariffs. Not all mind you. Some are taking a hard line and threatening more tariffs of their own.
The process of eliminating foreign tariffs and increasing manufacturing capacity in the U.S. won’t happen overnight. As the administration has warned, there will be some pain while these processes work out. Short term pain for longer term gain.
Please be aware the U.S. is the 900 pound gorilla in the room. Foreign countries need our consumers to buy their products.
Next, Federal Government debt and spending is finally under the spotlight. The previous administration had more deficit spending and added more to the Federal debt than any previous administration. Government spending kept the economy going and not falling into recession but caused inflation to skyrocket.
The economy is being weened the government taxpayer funds. Which is a necessity because $2 trillion in deficit spending per year in unsustainable. This kind of irresponsible spending – by both sides of the aisle – has created the Federal debt which stands at over $36 trillion. Also, completely unsustainable. The interest on the debt is already over $1 trillion per year. The interest on the debt will be the biggest expense of the Federal government.
I am very pleased to see DOGE hard at work. It is astounding to see the crazy spending they are uncovering. Most alarming is that $4.7 trillion in payments from the U.S. Treasury were left blank – nothing about who the payment was made payable to and not coded indicting what the payment was for.
Shutting down agencies that spend money wastefully is necessary. Businesses shut down unprofitable divisions all the time. You have seen it or worse yet been involved in it. The country is $36 trillion in debt. We can’t afford to waste money anymore.
We have all seen the studies, heard the reports and have real life experiences of government waste fraud and abuse over the years. The issue has been raised many times in the past. Most often nothing is done because politicians are generally fiscally irresponsible. Which is unacceptable considering all of you, all of us, make hard decisions and don’t spend money because we don’t have it. This spending with no concern for the consequences is totally unacceptable.
The bottom line is the spending must be cut. It is much better for everyone if all the waste, fraud and abuse is eliminated. Otherwise, it will be necessary to cut benefits. Politicians keep telling the other is going to take away your benefits. Well, if the spending isn’t cut there won’t be money to provide benefits. It is a fact that social security is in serious financial trouble. According to the OMB, social security will go bankrupt in less than ten years. This is fact that has been known for many years now.
All in all the economy is doing well.
The employment situation continues to be good. Even with the layoffs from the Federal government.
Inflation is holding steady.
The price of eggs has dropped a lot.
More importantly the price of oil and gas has dropped. The increase in energy costs was one of the drivers in the high prices we experienced the last few years.
Finally, Trump is doing his tariff thing now. His strategy is getting the ugly, hard part of his agenda done first. Before he loses the political capital.
Legislation is pending that addresses the other aspects of Trump’s agenda: maintaining the across the board tax cuts in place, further lower taxes (no tax on tips, overtime and social security). And to reduce regulations. These things will definitely boost the economy and investment markets.
Hang on through the current noise and volatility. You’re buying low. This will pass, just like every other market correction and bear market you have experienced in the past. If you are young, you will see this type of correction on a regular basis. Markets go up most of the time. However sometimes they drop.
Hang in there. Please reach out if you have questions, need help, or just want a shoulder to cry on.
