Dear friends,
The first quarter of 2025 has been marked by significant developments: a shift in Federal Reserve expectations, escalating trade tensions, and a notable decline in consumer sentiment. Recent announcements regarding new tariffs have further influenced market dynamics, underscoring the importance of staying informed and maintaining a disciplined investment approach.
Equities & Macro Sentiment
After a strong 2024, equities gave up some ground in Q1 amid rising uncertainty:
The selloff was concentrated in growth and technology, with AI-related names—many of which led 2024’s rally—giving back a portion of their gains. This rotation reflects rising skepticism around lofty valuations and a move toward more defensively positioned companies.
At the same time, consumer confidence fell to its lowest level since 2021, and retail sales softened in March. Combined with slowing capital expenditures and softer corporate earnings guidance, this points to a more cautious economic outlook heading into Q2¹.
On the upside, energy and utilities outperformed as investors shifted toward cash-flow-generating and inflation-sensitive sectors. The energy sector rose 9.3% for the quarter, with oil prices rising above $85 per barrel².
Bonds & Credit: Stabilizing Yields, Shifting Expectations
Fixed income markets remained relatively stable, despite equity volatility and shifting Fed expectations.
Private credit markets continue to offer compelling risk-adjusted returns, with floating-rate exposure proving valuable in today’s interest rate environment. We are selectively increasing exposure to this space where liquidity needs allow.
Overall, we continue to view short-to-intermediate-duration bonds as offering the best balance of income, rate risk, and flexibility in this uncertain environment.
Markets & the Fed: A Reset in Expectations
At the start of the year, markets expected as many as six rate cuts from the Federal Reserve. That view has since faded. Persistent inflation—particularly in services and housing—along with the potential inflationary impact of tariffs, have pushed expectations down to two or fewer.
The Fed has emphasized its data-dependent posture, and while it hasn’t ruled out rate cuts this year, it has also been clear: it will not act prematurely if inflation remains above target.
The Return of Tariffs: A Development to Watch Closely
In late March, the administration announced a 25% tariff on imported automobiles and parts, effective April 2. Analysts estimate this could increase the price of domestic vehicles by $3,000–$8,000 and imported vehicles by $10,000–$15,000⁴.
We’ve already seen evidence of consumers rushing to buy ahead of implementation⁵. These tariffs are likely to be inflationary and could slow consumer spending—a concern we’re watching closely.
This marks one of the most aggressive uses of tariffs in modern history and could materially impact growth projections if trade tensions escalate further.
So What Now?
The headlines change. The underlying behaviors—fear, reaction, optimism, and adaptation—don’t. History reminds us that investors who stay anchored in a clear plan and avoid reacting emotionally to volatility are often rewarded over time.
That said, the risk of a policy-driven slowdown or recession is rising. We’re adjusting portfolios where needed and remain vigilant in our positioning.
Portfolio Positioning
Thank you for your continued trust. Please reach out if you’d like to schedule a portfolio review or talk through any of the above in more detail.
Warm regards,
The Pacific Group of Oppenheimer & Co. Inc.
Sources & Disclosure
The foregoing is not and is under no circumstances to be construed as an offer to sell or buy any securities. The information set forth herein has been derived from sources believed to be reliable but is not guaranteed as to accuracy and does not purport to be a complete analysis of market segments or strategies discussed. Investing in securities is speculative and entails risk, including potential loss of principal. The opinions of the authors expressed herein are subject to change without notice and do not necessarily reflect those of the Firm. Additional information is available upon request. Oppenheimer & Co. Inc., nor any of its employees or affiliates, does not provide legal or tax advice. However, your Oppenheimer Financial Advisor will work with clients, their attorneys and their tax professionals to help ensure all of their needs are met and properly executed. The Standard & Poor's (S&P) 500 Index is an unmanaged index that tracks the performance of 500 widely held, large-capitalization U.S. stocks. Individuals cannot invest directly in an index. New York Composite Index measures all common stocks listed on the New York Stock Exchange and four subgroup indexes: industrial, transportation, utility and finance. The index tracks the change in the market value of NYSE common stocks, and is adjusted to eliminate the effects of new listings and delisting. The market value of each stock is calculated by multiplying its price per share by the number of shares listed. Dow Jones Industrial Average Index (DJIA): The oldest continuing US market Index, includes 30 “blue-chip” US stocks selected for their history of successful growth and wide interest among investors. It is called an average because it originally was computed by adding up stock prices and dividing by the number of stocks. This methodology remains the same today, but the devisor has been changed to preserve historical continuity.