The first quarter of 2025 offered a striking reminder of how quickly markets can pivot. Early signs of continued recovery from late 2024 were overtaken by sweeping new trade measures that disrupted supply chains, triggered market volatility, and reshaped investor sentiment. The introduction of broad-based import tariffs, announced on April 2 and dubbed “Liberation Day,” marked a turning point for the economic and policy landscape.
A Rapid Shift in the Economic Landscape
After Q4 2024 GDP growth of 2.4%, the first quarter signaled a slowdown. The Atlanta Fed’s GDPNow model currently projects a 2.2% first quarter contraction in economic output. January and February showed encouraging signs—personal income rose 0.9% in January, and consumer spending remained stable—but by March, momentum had weakened.
Figure 1: Atlanta Fed GDPNow 1Q25 Evolution (Quarterly % Change – SAAR)1
While inflation metrics remained in check—headline CPI at 2.8% and core PCE at 2.6%—tariff-driven price pressures are building. Housing activity picked up as mortgage rates eased, but business confidence, consumer sentiment, and industrial output have declined. Job growth has continued at a modest pace, with 228,000 net payroll additions in March, yet federal sector layoffs have nudged unemployment up to 4.2%.
Figure 2: University of Michigan Index of Consumer Sentiment2
Market Reaction: Volatility Returns
Markets responded swiftly to the policy shift. U.S. equities saw their sharpest two-day decline since 2020, with the S&P 500 falling 10.6% over two sessions. Small caps and technology stocks fared worse. Gold and other safe-haven assets rallied, with gold rising 17% in the quarter. The U.S. dollar weakened, while falling interest rates provided some support to fixed income markets.
Figure 3: 1Q25 Table of Market Returns3
This volatility was driven largely by the imposition of a 10% baseline tariff on all imports, along with additional targeted measures on over fifty countries. Retaliatory steps by major trading partners including China, Canada, and the EU have heightened fears of a broader trade conflict.
Our Strategic Response
At AMPWP, we remain guided by three enduring principles:
- Discipline over Disruption: We anchor portfolios to long-term goals, not short-term noise. Staying invested and sticking to a sound plan has historically rewarded patient investors more than attempts to time the market.
- A Focus on Quality: Our equity strategies emphasize high-quality companies with resilient cash flows, strong balance sheets, and durable competitive advantages. These businesses not only tend to outperform in periods of volatility but also help clients remain confident in their long-term allocations. Our quality-focused strategies outperformed the broader market by two to three percentage points in Q1.
- Patience with Purpose: For clients with elevated cash positions and long-term equity targets, we are proceeding with select additions, focusing on valuation and business durability. For those more fully invested, our attention is on maintaining portfolio integrity and proactively managing risk.
A Broader View
Despite the turbulence, the U.S. economy remains more resilient than during prior crises. There are no signs of systemic financial imbalance, and global supply chains, while strained, are still operational. However, trade-driven slowdowns carry real risk, particularly if corporate earnings, investment, and consumer behavior begin to soften.
If managed carefully, this policy shift could pave the way for reshoring and a renewed domestic growth agenda. If mishandled, it could accelerate economic weakness. We are actively monitoring the situation and positioning portfolios to be both defensive and opportunistic.
Looking Ahead
Periods of volatility test conviction, but they also create opportunity. At AMPWP, we continue to emphasize thoughtful portfolio construction, disciplined asset selection, and a long-term perspective.
If you have questions about how current developments may affect your portfolio, we invite you to reach out at investments@ampwp.com