A First Quarter Market Review

A look back, some interesting comments from BlackRock’s Chairman about the “Noise” of the daily news, and a hopeful look forward.

There was an optimistic start and a surprise ending to the first quarter. The major U.S. stock indexes had their worst quarter since 2022. They were down roughly 5% in March.

January saw the S&P 500 close at a 52-week high on the 28^th and end the month with a 1.7% gain. The S&P 500 software sector continued its decline, which began in late October, and reached bear market territory with a drop of 20%. International stocks continued to outperform U.S. equities.

The S&P 500 returned -.08% in February due to concerns about AI-driven job losses, announced layoffs, and rising oil prices that hit $72 a barrel—a price level that would be very welcome right now. Value stocks did better than growth stocks as the latter continued their slide, and international stocks outpaced U.S. stocks once again.

February was an active news month. The Supreme Court’s ruling that President Trump exceeded his authority in using the International Emergency Economic Powers Act to implement tariffs had minimal market impact. After the ruling, President Trump swiftly announced 10% tariffs across the board.

The effects of the 43-day federal government shutdown led to a slowdown in GDP growth and consumer spending. Inflation crept higher. A bright spot was that inflation growth came nowhere close to the dire predictions that followed last April’s “Liberation Day” tariff plan announcement.

Then war broke out on the last day of the month, a Saturday with no trading. The rest is history. Up and down oil prices, with big moves in stock prices, bond yields, and gold prices. Volatility abounds, and uncertainty reigns, never good for stock prices. This is a fear-driven downturn, with investors reacting to daily news of Treasury yield spikes and oil price movements.

Fed Chairman Powell highlighted the uncertainty at his March 18^th press conference when he commented that “many members of the Fed have ‘no conviction’ on how the economy will evolve.”

Larry Fink, BlackRock’s Chairman, offered some useful perspective about the “noise” that fuels daily swings in the markets and financial news headlines. Here’s an excerpt from his recently published, 15-page, 2025 letter to BlackRock’s employees and clients: 

“Every year, I write this letter as a distillation of a year’s worth of conversations with clients and employees, world leaders, CEO’s—and people investing for their retirement. Lately, no matter who is speaking, they’re saying the same thing: ‘We’re not sure how to navigate this moment.’”

He goes on to say:

“It’s understandable. We are living through a period where things that would’ve defined a decade have become routine: wars with global repercussions, trillion-dollar companies, a fundamental reordering of international trade and the advent of the most significant technology since, at least, the computer.”

“Too often, this gets filtered through a short-term lens. Daily market moves are treated as signals of lasting change, and complex economic or technological transitions are compressed into headlines. We live in a world where information moves instantly, and reactions follow just as fast. At times, it can feel dopamine-driven, where constant input rewards short-term impulses. But speed can distort perspective, crowding out long-term thinking.”

“To be fair, in financial markets all this short-term activity serves a purpose. It’s how new information is absorbed, risks are priced and how capital is allocated.”

Where do we go from here?

We expect to see a rebound in the markets if the Iran conflict is resolved sooner rather than later, provided that oil prices fall quickly and we avoid a longer-term inflation problem.  The uptick is not likely to happen as quickly as we saw after the “Liberation” Day” announcement, but we anticipate a relatively short-lived drawdown. The major indexes advanced more than 2.60% on Wednesday with the announcement of the Iran conflict cease fire agreement and the resulting drop in oil prices. Let’s hope those movements are a sign that further resolution of the conflict will spark a recovery.

Linked here is a history of the one-, two-, and three-year returns that follow market corrections. With a few exceptions, the history is encouraging. The exceptions: September 1999 saw a 1.1% increase in the Producer Price Index, the largest in nine years. That news was followed by Fed Chairman Alan Greenspan’s warning of market “Exuberance” and comments that raised expectations for a third-rate hike for the year. What followed was the burst in the Dot-com Bubble in 2000 and recession in 2021. The financial crisis of 2008 was triggered by the collapse of a housing bubble fueled by risky mortgage loans, the subsequent securitizing of those loans into financial products such as Mortgage-Backed Securities (MBS) and Collateralized Debt Obligations (CDO) and finally, ill-advised mark to market accounting requirements for banks.

The favorable jobs report from April 3^rd, growing GDP (albeit moderately), and high earnings forecasts are good signs for the equity markets. Especially so, now that the sell-off in tech stocks has dropped P/E ratios to more reasonable levels. It may just be a buyer’s market. But geopolitical risks can upset the cart. Oil must flow freely through the Strait of Hormuz and oil prices must come down to keep inflation at bay. Equity markets could also get a boost from expected Fed rate cuts at some point this year. The well-worn phrase, “cautious optimism”, applies here.