Wall Street stocks posted their worst quarter in almost three years on fears that Donald Trump’s tariffs will usher in a period of stagflation in the world’s biggest economy.
The S&P 500 dropped 4.6 per cent in the first three months of 2025, the worst performance since the third quarter of 2022, according to FactSet data.
The sharp pullback in the first quarter comes as Wall Street banks and investors fret that Trump’s levies on trading partners will slow economic growth while also increasing prices. Sentiment among consumers and businesses has also cooled sharply, several recent surveys have shown.
Investors are bracing themselves for Trump’s “liberation day” event on Wednesday, when the US president is expected to announce fresh tariffs, on top of existing levies on imports of goods such as steel and aluminium.
“I don’t think any of us expected the kind of continued headline noise, the lack of clarity on how the administration will go about achieving its goals,” said Jesse Mark, global head of equity capital markets at US bank Jefferies. “It feels very much self-inflicted.”
Sharon Bell, senior equities strategist at Goldman Sachs, said: “I don’t necessarily see the floor quite yet [in stock prices].”
Goldman at the weekend lifted its year-end forecast for an inflation rate closely watched by policymakers and warned it now saw a 35 per cent chance of US recession over the next year from 20 per cent previously.
The tariff threat “ups the risk premium that you put on equities”, said Bell, although she added that the US stock market had “other issues”, including a slowing pace of growth and public sector cuts.
Big Tech stocks, which have dominated markets in recent years, pulled back sharply in the first quarter, with the Nasdaq Composite sliding 10.4 per cent. The shares were hit by rising worries over the economy and concerns that a boom in spending on artificial intelligence infrastructure could be overdone.
Shares in Nvidia, which makes high-end chips that are widely used by AI groups to train their models, fell almost a fifth in the first quarter. Elon Musk’s electric-car maker Tesla plummeted 36 per cent. Industry behemoths Apple and Microsoft shed about 10 per cent.
Consumer-facing companies and other economically sensitive stocks also pulled back sharply. Nike sold off 16 per cent after the group said the trade war and consumer caution were complicating its efforts to boost sales as part of a turnaround. FedEx declined 13 per cent after slashing its 2025 profit forecast and warning of “continued weakness and uncertainty in the US industrial economy”.
European equities outperformed the US, in a marked shift from 2023 and 2024 when Wall Street zoomed past its rivals. London’s FTSE 100 and the Europe Stoxx 600 gained about 5 per cent in local currency terms.
Asian markets were mixed over the quarter, with Japan’s Topix sliding 4.5 per cent and China’s CSI 300 slipping 1.2 per cent, but Hong Kong’s Hang Seng jumping 15 per cent and South Korea’s Kospi rising 3.4 per cent.
Traders rotated into havens in the first quarter. Gold climbed as high as $3,128 a troy ounce, a fresh record. The 10-year US Treasury yield, which moves inversely to prices, fell to 4.21 per cent, from 4.57 per cent at the end of 2024.
“It is much more the uncertainty overall [that is] weighing on investor sentiment,” said Charles De Boissezon, global head of equity strategy at Société Générale. “The [tariff] announcements keep on changing, but what they have in common is that [they’re] just not good for growth globally.”
US markets were set for further small declines on Tuesday, with S&P 500 futures down 0.3 per cent ahead of the New York open. European stocks rebounded from the previous day’s declines, with the Stoxx Europe 600 up 0.9 per cent.
