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Stocks closed out the first quarter of 2025 near their lowest levels of the year. The S&P 500 had its worst quarter since the third quarter of 2022, plunging 4.6%. A major driver of the recent market sell-off has been President Trump's tariffs, with the S&P 500 falling 5.75% in March alone.
Can the S&P 500 bounce back in Q2? Probably not.
As "Liberation Day" on April 2 arrived, investors anticipate more details on Trump's reciprocal tariffs. "We are not dip buyers as the risks that drove the sell-off linger," wrote Citi’s head of US equity strategy, Stuart Kaiser, in a note to clients, as quoted on Yahoo Finance.
Multiple Factors Behind the Market Slump
The recent sell-off has been driven by a host of factors like deteriorating earnings expectations, declining consumer and business sentiment, and weakening economic data. Big Tech has been hit hardest, with the S&P 500’s high valuations at the start of the year prompting concerns about the sustainability of the rally.
The rally was led by a handful of top-performing tech stocks. The emergence of DeepSeek’s low-cost AI offering in China in January initially unsettled tech investors. This unease was further compounded by tariff-related fears, leading to a steep sell-off in tech stocks, particularly the market’s previous top performers.
The Magnificent Seven recorded their worst quarter against the S&P 500 in over two years, raising doubts about whether they can help drive the market higher again. Many analysts do not see Q2 as the right time for the Mag-7 stocks to bounce back. Most are bullish on Big Tech, but for the long term.
A Weakening Economic Backdrop
The broader market downturn has been exacerbated by revised growth expectations. At the start of 2025, analysts projected another year of above-trend growth for the U.S. economy. However, reality told a different story.
Consumer spending declined in January for the first time in nearly two years. February's rebound was weaker than expected. Meanwhile, Goldman Sachs revised its U.S. economic growth forecast from 2.4% to just 0.2% annualized.
Inflation remains stubbornly high, with the Fed’s preferred gauge showing a 2.8% rise in core prices in February, up from January’s reading. Meanwhile, Citi’s Economic Surprise Index has dropped since mid-January, indicating that most economic data have fallen short of expectations.
Truist co-chief investment officer Keith Lerner expects market volatility to continue for several weeks and likely months (as quoted on Yahoo Finance), and a quick return to record highs is unlikely.
S&P 500 to Remain Under Pressure in Q2?
As economic concerns and trade tensions flare up, strategists are lowering their outlooks for the S&P 500. Goldman Sachs remains skeptical that the start of a new quarter will bring much relief, as quoted on Yahoo Finance. The firm has set a three-month target for the S&P 500 at 5,300, about 5% below current levels.
ETFs in Focus
Against this backdrop, investors may want to stay away from the S&P 500-based exchange-traded funds (ETFs) like SPDR S&P 500 ETF Trust (SPY - Free Report) and Vanguard S&P 500 ETF (VOO - Free Report) . Instead, they can go for high dividend version of the S&P 500 ETF SPDR Portfolio S&P 500 High Dividend ETF (SPYD - Free Report) . Inverse S&P 500 ETF ProShares Short S&P500 ETF (SH - Free Report) can also be tapped, if the economic developments show signs of worsening.
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Can S&P 500 Bounce Back in Q2? ETFs in Focus
Stocks closed out the first quarter of 2025 near their lowest levels of the year. The S&P 500 had its worst quarter since the third quarter of 2022, plunging 4.6%. A major driver of the recent market sell-off has been President Trump's tariffs, with the S&P 500 falling 5.75% in March alone.
Can the S&P 500 bounce back in Q2? Probably not.
As "Liberation Day" on April 2 arrived, investors anticipate more details on Trump's reciprocal tariffs. "We are not dip buyers as the risks that drove the sell-off linger," wrote Citi’s head of US equity strategy, Stuart Kaiser, in a note to clients, as quoted on Yahoo Finance.
Multiple Factors Behind the Market Slump
The recent sell-off has been driven by a host of factors like deteriorating earnings expectations, declining consumer and business sentiment, and weakening economic data. Big Tech has been hit hardest, with the S&P 500’s high valuations at the start of the year prompting concerns about the sustainability of the rally.
The rally was led by a handful of top-performing tech stocks. The emergence of DeepSeek’s low-cost AI offering in China in January initially unsettled tech investors. This unease was further compounded by tariff-related fears, leading to a steep sell-off in tech stocks, particularly the market’s previous top performers.
The Magnificent Seven recorded their worst quarter against the S&P 500 in over two years, raising doubts about whether they can help drive the market higher again. Many analysts do not see Q2 as the right time for the Mag-7 stocks to bounce back. Most are bullish on Big Tech, but for the long term.
A Weakening Economic Backdrop
The broader market downturn has been exacerbated by revised growth expectations. At the start of 2025, analysts projected another year of above-trend growth for the U.S. economy. However, reality told a different story.
Consumer spending declined in January for the first time in nearly two years. February's rebound was weaker than expected. Meanwhile, Goldman Sachs revised its U.S. economic growth forecast from 2.4% to just 0.2% annualized.
Inflation remains stubbornly high, with the Fed’s preferred gauge showing a 2.8% rise in core prices in February, up from January’s reading. Meanwhile, Citi’s Economic Surprise Index has dropped since mid-January, indicating that most economic data have fallen short of expectations.
Truist co-chief investment officer Keith Lerner expects market volatility to continue for several weeks and likely months (as quoted on Yahoo Finance), and a quick return to record highs is unlikely.
S&P 500 to Remain Under Pressure in Q2?
As economic concerns and trade tensions flare up, strategists are lowering their outlooks for the S&P 500. Goldman Sachs remains skeptical that the start of a new quarter will bring much relief, as quoted on Yahoo Finance. The firm has set a three-month target for the S&P 500 at 5,300, about 5% below current levels.
ETFs in Focus
Against this backdrop, investors may want to stay away from the S&P 500-based exchange-traded funds (ETFs) like SPDR S&P 500 ETF Trust (SPY - Free Report) and Vanguard S&P 500 ETF (VOO - Free Report) . Instead, they can go for high dividend version of the S&P 500 ETF SPDR Portfolio S&P 500 High Dividend ETF (SPYD - Free Report) . Inverse S&P 500 ETF ProShares Short S&P500 ETF (SH - Free Report) can also be tapped, if the economic developments show signs of worsening.