The first quarter of 2025 has been anything but smooth for the U.S. stock market. The S&P 500 (SPX) is down 10.56% from its all-time high earlier this year, marking a turbulent start for traders and long-term investors alike. Year-to-date, the index has declined 4.37%, reflecting growing concerns over tariffs, inflation, and a rising risk of recession.
For those navigating the market, understanding why this downturn is happening — and how to position yourself strategically — is crucial. Let’s break down the key factors behind this decline, what the latest economic data tells us, and how I’m personally trading through this volatility.
Why Is the S&P 500 struggling?
The market’s weak performance in Q1 2025 boils down to three major challenges:
Tariff tensions and trade Uncertainty
The return of aggressive tariff policies under President Donald Trump’s administration has investors worried. The US imposed new import tariffs on China, the European Union, and Mexico, targeting key sectors like technology, consumer goods, and energy.
This has fuelled concerns about slower global economic growth, as companies face higher costs and disrupted supply chains.
As per the latest CNN reports the tariffs on oil imports caused crude prices to spike 3% in a single day, worsening inflation fears.
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Markets hate uncertainty, and investors are pulling money out of equities as a result.
Rising recession risks
Goldman Sachs has increased the odds of a US recession to 35% — up from 20% earlier this year.
The bank also slashed its 2025 US GDP growth forecast to just 1%, citing tariff impacts and weaker corporate earnings.
Federal Reserve rate cuts, which were widely expected in 2025, may now be delayed due to persistent inflation pressures.
With slower economic growth and the potential for higher costs, companies may struggle to maintain profit margins.
Tech stocks under pressure
The “Magnificent Seven” tech stocks—including Apple, Microsoft, Tesla, and Nvidia — saw a major sell-off in Q1.
At the time of writing this article, Tesla has dropped 32% year-to-date (YTD), while Nvidia is down 22%.
The Nasdaq fell 14.98% in Q1 from its previous high YTD, reflecting investors’ concerns about overvalued tech stocks.
The same stocks that powered the market higher in 2023 and 2024 are now dragging it lower.
Economic data: Mixed signals
The latest US economic reports show a cooling economy, but not a full-blown crisis—yet.
GDP growth: According to the Bureau of Economic Analysis data, the US economy grew only 2.4% in Q4 2024(Oct,Nov,Dec), and the Atlanta Fed GDP forecast is now at 2.8 percent as per data released on March 28, 2025.
Unemployment: The jobless rate rose to 4.1% in February, with 203,000 more Americans unemployed compared to January as per Trading Economics latest data.
Consumer sentiment: Households are growing increasingly worried about inflation and job security, leading to weaker retail spending.
Corporate earnings are also under pressure:
Analysts originally expected S&P 500 earnings to grow 9% in 2025. Now, growth expectations have been cut to just 6.1%.
The Nasdaq’s latest report estimates that 15 of 16 major sectors have had their earnings estimates downgraded for Q1 2025.
These figures suggest slower growth but not an immediate collapse. However, markets are reacting to the uncertainty ahead.
What this means for investors
A 10.56% decline from peak levels means the S&P 500 is officially in a correction. But what does that mean for traders and long-term investors?
Key risks:
Tariff uncertainty: If trade tensions escalate, it could lead to supply chain disruptions and higher costs for businesses.
Recession fears: A slowing economy could reduce corporate profits, making stocks less attractive.
Rate cut delays: If inflation remains high, the Federal Reserve may hold off on cutting interest rates, which would keep borrowing costs elevated.
Opportunities for investors:
Stocks are cheaper now than they were earlier in 2025, presenting a potential buying opportunity for quality companies.
Bonds and dividend stocks could become more attractive for risk-averse investors.
Volatility creates opportunities for options traders and short-term investors.
If you are feeling uneasy about the markets, diversification and risk management are key.
How I’m trading in this volatile market
In uncertain times like these, I focus on strategies that generate consistent income and manage downside risk.
Selling covered calls
I own stocks that I believe in long-term and sell call options against them.
This generates premium income, even if the stock price stays flat or slightly declines.
Example: Selling calls on Walmart (WMT) allows me to collect premium while holding a strong defensive stock.
Selling cash-secured puts
I sell put options on stocks I’d like to buy at a discount.
This allows me to earn income while waiting for a better entry point.
Example: I sold SOFI $11 puts for a $0.20 premium per contract per week — if the stock drops, I buy it at a discount; if not, I keep the premium.
These income-generating strategies help smooth out volatility and create consistent cash flow in uncertain markets.
Want to see my real trades and strategy breakdowns? Check out my Streetwise Economics YouTube channel for step-by-step tutorials: https://rb.gy/m1kum3.
Looking ahead: What to watch in Q2
Markets will remain volatile in the coming months. Here’s what I’m watching:
*Tariff negotiations — If tensions escalate, stocks could slide further. By the tie article is printed, the reciprocal tariffs will be in effect on April 2.
* Federal Reserve policy — Will rate cuts come in mid-2025, or will inflation force delays?
*Corporate earnings — Q2 earnings season will reveal how well businesses are handling economic uncertainty.
*Unemployment trends — A sharp rise in joblessness could signal deeper economic trouble.
Final thoughts: Stay disciplined
The S&P 500’s weak start to 2025 is a reminder that markets move in cycles. Investing comes with both risks and rewards, so staying patient and strategic is key.
Don’t panic sell during corrections—long-term investors should focus on fundamentals.
Consider options strategies like covered calls and cash-secured puts to generate income in volatile markets.
Always do your own due diligence before investing.
For more market insights and live trading strategies, check out my latest videos on Streetwise Economics or book 1:1 call with me on www.streetwiseeconomics.com for more personalized insights. Until next time, trade and invest wisely and may the markets be on your side
- Isaac Jonas is a Canada-based economist and principal consultant at Streetwise Economics. He is also a retail investor, retail trader and content creator, focusing mainly on the US and Canadian capital markets. He regularly shares insights via his social media handles and YouTube channel (Streetwise Economics). His website is www.streetwiseeconomics.com and can be reachable on isacjonasi@gmail.com. Insights shared in this article are based on current market conditions, which may be subject to change, hence this article does not amount to investment advice.
