Press Release: The first quarter of 2025 has seen significant movements in equity markets, reflecting both global economic tensions and domestic U.S. factors. A combination of geopolitical decisions, persistent inflation, and recession fears have dominated investor and analyst attention. It is also an environment that is testing investors' patience and changing many traders' attitudes toward risk.
More information about the current situation can be found here. in Tomáš Vranka's new video on the XTB YouTube channel and also on the upcoming Online trading conference, which will take place on April 12th.
Significant market declines: A sign of a trend change?
The end of last week was marked by a sharp decline in stock markets. Index The S&P 500 fell more than 2%, while technologically focused Nasdaq lost over 3%.
While these are not unprecedented declines, they are an above-average sell-off in the context of normal market activity. The decline continued into the start of the new week, although there was a slight turnaround on Monday and markets saw a partial recovery.
US500 (S&P 500) price development, daily candles
Source: xStation
Past performance is not a reliable indicator of future performance.
What Causes Sell-Offs? Key Factors on the Scene
The current development is due to several interconnected factors that increase the level of uncertainty in the market:
1. New tariffs imposed by Donald Trump
One of the main triggers of uncertainty was President Donald Trump's announcement of a new round of tariffs on cars and their parts of 25%If the measures were to enter into force in full, the total tax burden on the automotive sector could reach up to 45%.
This move raises concerns about possible retaliatory measures, especially from the European Union, which could respond by imposing its own tariffs on American goods. The result would be higher prices for consumers, which in koneconsequently increases inflationary pressures in USA.
2. Higher-than-expected inflation
Data was released on Friday PCE (Personal Consumption Expenditures) – an inflation indicator, which is one of the most important indicators for the US central bank, the Fed. The results were worse than the market expected, which signals that inflation may remain elevated for longerthan expected.
This increases the pressure on the Fed to Mroneshawl interest rates at higher levels longer than markets would like, thus increasing the cost of financingancand at the same time the attractiveness of stock investments is decreasing.
3. Fears of recession and economic slowdown
Increased prices and uncertainty around the Fed's monetary policy are also reflected in worsened consumer sentiment and cooling economic activity. Higher prices mean that households can afford fewer goods and services, which can hamper growth and negatively affect corporate profits.
Some major financial institutions have already published their recession probability estimates:
- Goldman Sachs estimates it at 35% in the next 12 months.
- Deutsche Bank is even more pessimistic and speaks of a probability of over 40%.
Also Atlanta Fed (one of the branches of the US central bank) published an estimate that US GDP to fall by 2,8% in the first quarter, which confirms the worsening outlook for the US economy. We will still have to wait for official data, but the estimate itself indicates a significant cooling.
Estimated US GDP growth over time
Source: atlantafed.org
High interest rates as a market burden
Inflationary pressure means the Fed remains cautious and will not cut rates as quickly as the market had hoped. Higher interest rates increase the cost of credit, reduce corporate profits and at the same time reduce the value of future profits, which is particularly negative for high-value equity markets.
An example is the index S & P 500, which, even after a recent 10% correction, is trading at 24 times profitsSuch high valuations increase the market's vulnerability to any negative surprises – and there have been many of those recently.
Source: Bloomberg Terminal
Worst quarterly performance since 2022
All of the above factors were reflected in the overall performance of US stocks, which recorded worst quarterly result since 2022Investors are thus facing an environment that is difficult to predict and requires more careful strategy.
Diversification and an active approach as a response to volatility
In this way uncertain and volatile market environment Many investors and traders are trying to adapt their strategy to current conditions. Many are therefore choosing the path greater portfolio diversification, which helps spread risk across multiple asset classes. At the same time, there is a trend towards shorter investment horizons, which allows investors to respond more quickly to market changes. A third common step is a more proactive approach to risk management, which is manifested in more frequent position adjustments, greater discipline when setting stop losses, or the use of more defensive tools.
All this and much more will be the topic XTB online trading conference, which will take place April 12, 2025Participation is free and will offer insight into specific strategies on how to navigate such a market effectively and with a cool head.
Investing is risky. Invest responsibly.
