First Quarter 2025 Update

April 1, 2025

Key Points

• The U.S. economy remains resilient and adaptable despite recent challenges, and signs of robust growth continue even amid uncertainties. Recent policy adjustments signal that while global trade tensions and evolving government spending are raising recession concerns, economists believe adaptive measures are likely to support continued growth.
• The FOMC at its latest meeting maintained the target range of its primary policy rate, the federal funds rate, at 4.25%-4.50%. Economists had expected the pause, as the inflation rate has remained stubbornly elevated in recent months.
• Stock prices were generally lower for the quarter, with losses in certain economic sectors more pronounced than others. Stock investors are grappling with stubbornly high inflation, uncertainty stemming from the Trump administration’s tariff policies, the potential for a trade war, and renewed concerns about a potential recession.

1st QUARTER 2025 MARKET COMMENTARY

Below, we’ve highlighted broad market returns for the current quarter and year-to-date time periods:

Source: Refinitiv

THE GLOBAL ECONOMY

The US economy continues to demonstrate robust results, as its growth rate maintained its recent solid performance in the fourth quarter of 2024. The primary driver of the continued resilience was consumer spending and imports. Within this context, the Bureau of Economic Analysis released the third estimate of the fourth quarter 2024 real gross domestic product (GDP), a seasonally adjusted annualized rise of 2.4%, slightly higher than the prior estimate of 2.3%, but a modest decrease from the previous quarter.

In the latest data available, the Bureau of Economic Analysis released the third estimate of the fourth quarter 2024 real GDP, a seasonally adjusted annualized rise of 2.4%, an improvement on the 2.3% prior estimate, but a decrease from the 3.1% number of the previous quarter. The consensus opinion among economists is that the economy’s performance could not be much better since the growth rate exceeded its 2% long-term growth potential. They are also encouraged that inflation, while remaining relatively high, is trending toward the FOMC’s 2% target after a long period of historically elevated levels.

EQUITIES

Stock prices were generally lower for the quarter, with losses in certain economic sectors more pronounced than others. Stock investors are grappling with stubbornly high inflation, uncertainty stemming from the Trump administration’s tariff policies, the potential for a trade war, and renewed concerns about a potential recession. Stock prices generally trended higher through the first seven weeks of the quarter but began falling sharply when tariff discussions began in earnest in late February. When the quarter ended, the S&P 500 Index was lower by 4.3%. International markets fared better during the quarter, with the MSCI EAFE Index of developed markets stocks higher by 6.9%, and the MSCI Emerging Markets Index advancing by 2.9%.

FIXED INCOME

The FOMC at its latest meeting maintained the target range of its primary policy rate, the federal funds rate, at 4.25%-4.50%. Economists had expected the pause, as the inflation rate has remained stubbornly elevated in recent months. In its Summary of Economic Projections (SEP) released in conjunction with its latest meeting, the FOMC is projecting the Personal Consumption Expenditure (PCE) index, its preferred inflation measure, to end the year at 2.8%, an increase from the 2.5% expectation at the last meeting. Inflation has proven to be more difficult to slay than analysts anticipated, in part due to uncertainty over the impact of tariffs. The FOMC’s projection for the median year-end fed funds rate is 3.875%.

SUMMARY

The U.S. economy remains resilient and adaptable despite recent challenges, and signs of robust growth continue even amid uncertainties. Recent policy adjustments signal that while global trade tensions and evolving government spending are raising recession concerns, economists believe adaptive measures are likely to support continued growth. Historical experience shows that when pressures build, policymakers have effectively recalibrated economic measures to protect key sectors such as manufacturing, agriculture, and services, reinforcing the economy’s enduring strength.

Encouragingly, many businesses are maintaining steady hiring practices with low levels of layoffs, reflecting confidence in future demand. The government’s willingness to adjust trade policies—evident in previous shifts during trade disputes—offers hope that current tariff pressures will be moderated when necessary, allowing the U.S. economy to continue its global leadership role. Additionally, while some economic indicators have raised caution, they are also prompting preemptive measures that help safeguard financial stability. Consumers have also demonstrated resilience by adapting their spending habits without significant loss of confidence. Even though some areas, such as mortgage lending, experienced stress, these are balanced by improvements in credit conditions and support from fiscal policies aimed at maintaining household stability. In essence, potential economic headwinds are being met with proactive strategies, which may not only temper the risks of a downturn but also create a framework for modest, steady growth.

Overall, while challenges remain, the economic outlook is, on balance, positive. The combined effects of policy flexibility, strong underlying market fundamentals, and a commitment to recalibrating strategies as conditions change suggest that the economy is positioned to weather current uncertainties.

Information provided is for informational purposes only and should not be construed as investment advice. The views expressed are current only as of the publication date, are based on information that St. Clair Advisors believes to be accurate, and subject to change without notice. All investment decisions must be evaluated as to whether they are consistent with your investment objectives, risk tolerance and financial situation. St. Clair disclaims any liability for any direct or incidental loss incurred by applying any of the information in this publication. Indexes are unmanaged and one cannot invest directly in an index. Past performance is no guarantee of future results.

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