Q1 Post-Mortem: The Market Shifts You Don't Want to Ignore
As the second quarter gets underway, here are some takeaways from the market's first-quarter performance to consider as you make your investment decisions.
April Fools' Day may have kicked off the second quarter, but the financial markets were dead serious in the first quarter.
For savvy investors — those with a solid portfolio foundation but still navigating the twists of a changing economy — the first three months of 2025 delivered a wake-up call.
From steep stock losses to a gold rush not seen in decades, generational shifts unfolded that demand attention, whether you’re a senior executive, managing a 401(k) or running the corner drugstore.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Here’s what happened and what it means for your money as the second quarter gets underway.
A rough ride for U.S. stocks
The S&P 500 and Nasdaq took a bruising, posting their steepest quarterly losses in over three years. Technically speaking, the S&P slipped below its 200-day moving average, sometimes viewed as a bearish signal, which it didn’t flash all of last year.
The culprits? Look no further than the Magnificent 7 tech giants, whose stumbles accounted for nearly all of the S&P’s drop. Meanwhile, the broader U.S. market showed surprising resilience, with average stocks outpacing the large-cap growth darlings that have dominated headlines.
Takeaway: Diversification matters more than ever. If your portfolio leans heavily on tech heavyweights, Q1’s volatility is a nudge to rebalance toward broader exposure, including smaller cap and value stocks that held up better.
The global stage steals the show
While U.S. markets faltered, international and emerging markets were bright, outperforming domestic indexes to a degree not seen since 1988.
Gold, too, staged a historic rally, surging past $3,000 an ounce for its strongest quarter in nearly 40 years and a record high that sent gold miners soaring.
U.S. bonds eked out modest gains, but not enough to offset stock losses, while cryptocurrencies mirrored tech’s roller-coaster ride more than anything else.
Takeaway: Don’t sleep on global opportunities. Adding emerging market stocks or a small allocation to gold could hedge against U.S.-centric risks, especially with recession whispers growing louder.
Recession risks and stagflation shadows
Speaking of whispers, Goldman Sachs reduced growth forecasts while hiking inflation projections, a combo eerily reminiscent of 1970s stagflation. Jobs softened, corporate profit margins thinned, and housing affordability hit a recent record: The median home now eats up nearly half the median household income.
Add in economic policy uncertainty at a 50-year peak, fueled by tariffs and debt-cutting austerity, and it’s no wonder investor sentiment (per AAII and Conference Board surveys) is downright gloomy.
Takeaway: Brace for choppiness. With the Fed juggling sluggish growth and stubborn inflation, interest rate paths remain murky. Consider holding cash for flexibility and consider inflation-resistant assets like TIPS or commodities to hedge against inflation.
Valuations and volatility: A reality check
Despite the market’s wobble, U.S. valuations — think market cap to GDP or the CAPE ratio — still sit at historically lofty levels. That’s a potential red flag for long-term returns, especially as volatility spiked in Q1.
Attention now shifts to how the tariffs story evolves, which could either steady the ship or rock it further. For now, the stage is set for a complex Q2, blending growth fears, inflation pressures and policy pivots.
Takeaway: Temper expectations. High valuations suggest stocks may not deliver the outsized gains of recent years. Look to steady performers — companies with solid financial foundations, reasonable valuations and reliable dividends — to help ride out the turbulence.
What’s next for your portfolio?
Q1’s lessons are clear: The old playbook might not cut it. Investors should take stock, literally and figuratively.
If you’ve been riding the tech wave, diversify beyond the Magnificent 7. And don’t let home bias prevent you from diversifying globally, as global markets showed their strength this quarter after years of underperformance.
If you’ve ignored gold or international markets, consider dipping a toe in toward more diversification. And if you’re sitting on cash, don’t rush, as volatility could unearth buying opportunities as Q2 unfolds.
The market isn’t playing games, but you don’t have to either. Stay nimble, keep an eye on headlines and lean into the shifts that Q1 laid bare. Your portfolio and your peace of mind could thank you.
Related Content
- Market Volatility Tempting You to Get Out? Read This First
- Three Keys to Logical Investing When Markets Are Volatile
- During Market Volatility, Avoid These Common Investing Pitfalls
- Four Historical Patterns in the Markets for Investors to Know
- Best Low-Volatility ETFs for When the Market Is a Roller Coaster
-
Stocks Struggle for Gains to Start 2026: Stock Market TodayIt's not quite the end of the world as we know it, but Warren Buffett is no longer the CEO of Berkshire Hathaway.
-
Tip: Ways to Track Your Credit Card RewardsHere are the best strategies and apps to help you stay current with your credit card rewards.
-
How New Investors Can Pick Their Perfect Portfolio, According to a ProSee what Cullen Roche has to say about finding your perfect portfolio as a new investor and his two-word answer on where he thinks the stock market is headed in 2026.
-
Stocks Struggle for Gains to Start 2026: Stock Market Today
It's not quite the end of the world as we know it, but Warren Buffett is no longer the CEO of Berkshire Hathaway.
-
How New Investors Can Pick Their Perfect Portfolio, According to a Pro
See what Cullen Roche has to say about finding your perfect portfolio as a new investor and his two-word answer on where he thinks the stock market is headed in 2026.
-
High-Net-Worth Retirees: Don't Overlook These Benefits of Social SecurityWealthy retirees often overlook Social Security. But timed properly, it can drive tax efficiency, keep Medicare costs in check and strengthen your legacy.
-
Do You Have an Insurance Coverage Gap for Your Valuables? You May Be Surprised to Learn You DoStandard homeowners insurance usually has strict limits on high-value items, so you should formally "schedule" these valuable possessions with your insurer.
-
If You'd Put $1,000 Into Lowe's Stock 20 Years Ago, Here's What You'd Have TodayLowe's stock has delivered disappointing returns recently, but it's been a great holding for truly patient investors.
-
Don't Trade After-Hours Without Reading ThisAre you a night owl or an early bird with a yen for active trading? Before you transact after-hours, consider these tips and potential traps.
-
8 Practical Ways to Declutter Your Life in 2026: A Retirement 'Non-Resolution' ChecklistHere's how to stop wasting your energy on things that don't enhance your new chapter and focus on the things that do.
-
To Retire Rich, Stop Chasing Huge Returns and Do This Instead, Courtesy of a Financial PlannerSaving a large percentage of your income, minimizing taxes and keeping spending in check can offer a more realistic path to retiring rich.
