The first four months of 2025 have been a wild ride for Wall Street.  Investors don’t respond well to change, and their typical response is to sell and ask questions later.  On March 16, 2022, Jerome Powell, Federal Reserve Chairman, announced the Federal Open Market Committee’s decision to begin an aggressive rate hike campaign to slow a rapidly out-of-control inflationary trend.  Inflation had soared in 2021, partially due to trillions of dollars released into the economy by the Federal Government via subsidy programs.  Whether or not institutional investors agreed that inflation was out of control and the Federal Reserve’s policy potentially could abate the rapid rise of prices, institutional investors ran for the exits, reducing their stock holdings.  Investors continued to sell as the Federal Reserve stayed with its rate hike policy despite criticism by the major media and analysts that the policy would drive the economy into a recession.  I rarely read any comments of projections if the Federal Reserve not acted in an attempt to slow inflation. 

Nonetheless, institutional investors selling sank the major indices, with the S&P 500 dropping 24.95% by October 12, 2022.  Investors continued selling tech sector stocks for an additional two months, with the NASDAQ index finally bottoming on December 29, 2022, with a 33.1% decline for the year.  It was a rough year as all the major indices ended 2022 with negative returns.

However, institutional investors turned optimistic in 2023, even months before the Federal Reserve began to slow its rate-hike campaign.  By March 28, 2023, the S&P 500 bearish trend turned positive, crossing its 20, 50, and 200-day moving Average (DMA), and the rally continued until January 2025. 

The tech sector NASDAQ index also turned positive on March 29, 2023, with a strong rally that took the index to all-time highs and erased the previous year’s decline.

This year, institutional investors responded the same to President Trump’s tariff announcements with aggressive stock selling. The new administration had already challenged the patience of institutional investment teams with new policies that ranged from immigration to college social policies. However, President Trump’s April 2, 2025, announcement of new aggressive tariff policies on what appeared to be a trade war with 90 countries was too much for investors to bear.  The major indices, already in a slow decline dropping below their 20, 50, and 200 DMA, turned into a rout.  Institutional investors ran for the exits again, erasing nearly 70% of the previous year’s gain.  The major media and analysts were incensed by these new tariff policies, with projections that included major supply chain disruptions, rapid inflation, damaged foreign relations, and worldwide recessions.

That all changed on May 12 with announcements that China and the US reached trade agreements, and as quickly as the markets sold down, they recover.  The S&P 500 is now positive for the year and above its 20, 50, and 200 DMA.

However, only the S&P 500 of the US major indices are in the black for the year, with the S&P 600 (small cap) trailing with a YTD return of -6% to -8%.  The MSCI Ex US index, which has trailed the S&P 500 for more than a decade has significantly outpaced the US markets so far this year.

The recovery is in its early stages and, barring any new economic disruptions, should continue into the summer.  Investors can sigh a breath of relief for what is already a challenging year with trillions of stock market values seemingly lost in days only to nearly fully recover.  All this volatility in just five months.

It would be ignorant to assume that President Trump or some other circumstance will not rock Wall Street with some new, potentially disruptive event.  However, investors may be slower to react to new administration announcements or look for new buying opportunities during the next abrupt selloff, assuming no material change in the US economy. 

What investors are concerned about now is if and to what extent the short pause in manufacturing will have on the US economy.  Home Depot (HD) stated during their earnings call yesterday that they do not intend to raise prices due to the tariffs. Richard McPhail, Chief Financial Officer for Home Depot, told CNBC in an interview:

• “Because of our scale, the great partnerships we have with our suppliers, and the productivity that we continue to drive in our business, we intend to generally maintain our current pricing levels across our portfolio,”

The change of prices by other major box stores will remain to be seen later this year.  In the meantime, consumer spending slowed in the first quarter of 2025, possibly due to concerns about higher prices.  E-commerce sales were flat for the first quarter of 2025, and the first 0% quarter-over-quarter (Q/Q) change of e-commerce sales in over two years.

What Does This Mean to Me?

Investors who held through the past two months of volatility must be relieved to see their accounts rebounding. The major media and analysts caused significant investor anxiety with projections that ranged from recession to a US economic meltdown, usurping the US dollar as the world currency.  Stocks of top-growth companies with no indication of changes in future earnings plummeted in price, erasing trillions in market capitalization. 

It’s during volatile market cycles that the impatient hand over their money to the patient.  My experience spanning 35+ years navigating through multiple market declines is the importance of monitoring institutional trading activity and determining if the selling is to cover short- or long-term risks.  In 2022, institutional selling was due to announcements by Jerome Powell that the Federal Reserve was embarking on a longer-term rate hike campaign to slow inflation.  History indicates that when the Federal Reserve raises rates for an extended period, markets and the economy slow.  This being a longer-term impact prompts us to reduce our stock holdings in early 2022 and hedge against a protracted market downturn.

This year, the stock market selloff appeared to us to be shorter-term in nature and not indicative of substantive changes in the US economy.  The Trump administration was negotiating with nations, and particularly with China, on tariff policies in full view of the world. Wall Street became hypersensitive to headline news and especially to every dire projection. President Trump forewarned investors that there would be “disruptions” in his State of the Union address to achieve a more balanced foreign trading agreement. He also said that when the dust settles in tariff negotiations that America would be in a better position with its trading partners.  Investors didn’t care and only focused on the extreme near term.

Thankfully, negotiations went well, and agreements with China and other major countries are being resolved quickly with what may be minimal impact to supply chains and prices.   

It’s always a challenge to know when to hold, buy, and sell.  Experience, technical analysis, and historical references have been our keys to navigating through rough times.  It’s not easy, and we are not always right, but it is our company’s goal to preserve our clients’ wealth during down cycles and capitalize on opportunities during up cycles. 

Let us know your thoughts on this UPdate. More importantly, let us know how we can assist you and your family in building wealth and pursuing personal goals.