As Q1 came to an end yesterday, many U.S. investors were left licking their wounds.
What happened: In the first quarter of 2025, the S&P 500 posted its first quarterly loss since September 2023 and the steepest quarterly drop since September 2022.
Why it’s happening: Firstly, investors don’t like uncertainty, and there’s been nothing but uncertainty since Donald Trump began his all-out tariff assault. Secondly, the previously high-flying tech giants dubbed the “Maginifcent Seven” — which accounted for over half of S&P gains last year — have struggled.
- Each of the seven companies (Apple, Microsoft, Nvidia, Amazon, Tesla, Meta, and Alphabet) are down on the year, with shares falling an average of 15.4% in Q1.
- Some investors fear the AI boom has turned into an AI bubble ready to pop, and that could drag down indexes that have become too reliant on these companies for driving returns.
Why it matters: Thanks to unparalleled growth, profit margins, and share of the world’s innovative companies, foreign cash has flowed into the U.S. market in recent years. So many non-U.S. investors are highly exposed that a prolonged slump will have an outsize global impact.
- Almost 20% of all U.S. equities are owned by foreign entities these days; that number was just 7% at the start of the century.
Zoom out: The U.S. isn’t likely to lose its market supremacy, but in the short term, investors might look to park money elsewhere. European stocks, the unpopular wimp to the cool U.S. jock, popped off last quarter, along with gold and bonds.—QH