Making Markets Quarterly Market Recap: Q1 2025 - [Making Markets, EP.60]
May 9, 2025
In this quarter's recap, major indices saw significant downturns, with the S&P down over 8% and Nasdaq 12.5%. Unexpected tariff policies triggered market unpredictability, deeply affecting investor sentiment. The bond market also reacted sharply, raising concerns about corporate earnings and economic growth. The complex U.S.-China relationship and fears of capital flight add layers of uncertainty. Discussions highlight the Fed's balancing act between combating inflation and fostering growth in this tumultuous climate.
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Market Shock from Tariff Surprise
- The market entered 2025 pricing in perfect growth and bullish expectations about deregulation and AI.
- Tariffs shocked the market, causing a volatile correction and challenging these overly optimistic assumptions.
Unprecedented Tariff Shock
- The tariff announcement was unexpectedly large, stunning markets and defying prior expectations.
- This uncharted policy move created disbelief and uncertainty across economies and investors alike.
Bond Market Volatility and Theories
- The bond market experienced extreme volatility with rapid large moves reflecting demand destruction fears.
- Some speculate foreign actors like China triggered trading spikes, although motives and evidence are debated.