Economic News:
The Federal Reserve released minutes from its March policy meeting, revealing that officials are taking a “cautious approach” to monetary policy amid heightened uncertainty and growing concerns about both slowing economic growth and persistent inflation. Policymakers noted increased downside risks to employment and growth, alongside inflationary pressures likely to be amplified by higher tariffs. While the Fed remains ready to respond to incoming data, members acknowledged the potential for difficult trade-offs if inflation remains stubborn while the labor market weakens. Meanwhile, March consumer price data showed some cooling, with core CPI rising just 0.1%—its lowest monthly increase in nine months—though annual core inflation still rose 2.8%, the smallest gain since March 2021. Despite this moderation, consumer sentiment deteriorated further, with the University of Michigan’s index falling to its lowest level since June 2022 and year-ahead inflation expectations jumping to 6.7%, the highest since 1981, reflecting growing public anxiety over trade tensions.
What We’re Showing:
After a strong rally in late 2024, the S&P 500 stumbled in the first quarter of 2025, returning -4.6% as market volatility made its comeback. From policy uncertainty to geopolitical risks, investors faced various headwinds during Q1, including renewed trade tensions and fears of an economic slowdown. This chart breaks down how all 11 sectors in the S&P 500 performed in Q1 2025. The performance data comes from TradingView, with index weights from S&P Global.
Key Insights:
The energy sector delivered a 9.3% return and outperformed all other sectors, partly due to rising natural gas prices, which are up 40% in the last six months.
Defensive sectors like health care (6.1%), consumer staples (4.6%), and utilities (4.1%) performed well, pointing toward cautious investor sentiment amid fears of an economic slowdown and ongoing trade tensions.
Meanwhile, growth-heavy sectors bore the brunt of the market’s downturn. The consumer discretionary sector, which includes Tesla and Amazon among its top constituents, saw the sharpest fall with -14% returns. However, the S&P 500 was likely dragged into negative territory by the information technology (IT) sector, which makes up nearly 30% of the index. Overall, the IT sector tumbled by 12.8%, with Apple (-10.7%), Microsoft (-11.6%), and NVIDIA (-20.3%) all plunging sharply in Q1 2025.
The differences in sectoral performance indicate that investors are factoring in recession risks, based on various factors including a cooling job market and low consumer confidence.
As a result, money is rotating into value and defensive stocks, as well as safe-haven assets like gold and real estate.