Stock market index S&P 500 concludes a five-sequence victory run.
The S&P 500 took a nosedive of 4.6% during the opening quarter of 2025, snapping a string of five consecutive quarterly gains and marking its most dismal quarter since 2022. Let's dive into the reasons for this plunge.
This Wall Street juggernaut, made up of the 500 top-notch publicly-traded American companies, acts as a ruling bellwether for the health of the U.S. economy. By virtue of containing 17 of the 20 most valuable companies globally, it's a powerhouse that funds can't afford to overlook.
When you're dealing with a rollercoaster like this, small investors and pension funds alike are bound to feel the hit. Brace yourself for the tumultuous ride.
Power Up Your Knowledge, Get a Free Swag Bag
Step up your game and stay one step ahead of the finance world with our web-based magazine. You'll get the latest news, expert insights, and a 60% discount after the trial. Here's your chance to leap ahead.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, sums it up: "A crummy March capped a tragic quarter for the S&P 500 since 2022."
So, what happened? After four successive quarters of growth since Q3 2023 (when the S&P 500 fell 3.7%), the market seemed unstoppable. But, once March hit, the tide rapidly turned.
In the rearview mirror, it's clear that the S&P 500's quarterly slump mainly stemmed from:
1. Industrial-Scale AI Disruption: Enter DeepSeek, a Chinese AI startup making waves by producing AI results comparable to reputable U.S. firms at a fraction of the cost, challenging the tech giants, especially Nvidia, to regain their dominance.
2. Tech Earnings Season: Spooked by DeepSeek's appearance, the tech sector entered a skittish earnings season, with stocks losing ground even when they surpassed market expectations. This jitteriness has sparked longer-lasting sell-offs affecting big-name companies.
3. Tariff Time Bomb: The Springtime promise of lower taxes was cancelled out by the tariffs and trade wars brewing on the horizon. With 'Tariff Day' - er, 'Liberation Day,' as President Trump put it - just around the corner (April 2, 2025), fears of how these tariffs would maul the U.S. and global economies markedly impacted the S&P 500.
4. Grim Guidance: Pessimism from companies themselves played into the dour forecast for Q1. FactSet research shows that more S&P 500 companies than usual have issued negative earnings per share (EPS) guidance, with 68 out of 107 companies underperforming consensus expectations.
Technology companies seem to be at the forefront of this pessimism. "The Information Technology sector has the highest number of companies issuing negative EPS guidance of all 11 sectors, topping the charts with 26," explains John Butters, senior earnings analyst at FactSet.
But, before you panic and start flipping houses, remember that the U.S. is the world's richest economy. This economy's rollercoaster has weathered tough times before - think the 2008 financial crisis and even the burst dot-com bubble - and bounced back over the long haul.
"It's looking rocky in the short term, but if Washington-sparked uncertainty cools down, this could still be an opportune moment to snatch up top-tier stocks at a bargain," advises Britzman. Keep those shopping carts at the ready!
Small investors and pension funds are affected by the S&P 500's nosedive due to the turbulent market ride. The quarterly slump of the S&P 500 was largely caused by factors such as industrial-scale AI disruption, tech earnings season anxieties, tariffs and trade wars, and grim guidance from companies. Despite the short-term economic uncertainties, experts advise this could be an opportunity to invest in top-tier stocks at lower prices.
