The U.S. economy contracted in the first quarter of 2025, marking the first decline since 2022. The Commerce Department reported a 1.4% drop in gross domestic product, a sharp reversal from the 2.4% growth in the previous quarter. Despite the alarming GDP report, stocks rallied as retail investors “bought the dip.” The S&P 500 rose 0.15%, while the Dow Jones Industrial Average gained 141.74 points, or 0.35%.
The Nasdaq Composite, however, fell 0.09%. The decline in GDP was primarily attributed to a surge in imports, as companies tried to stay ahead of President Donald Trump’s tariffs. Consumer spending also slowed significantly, and government expenditures decreased.
During a cabinet meeting, President Trump criticized China’s trade policies but expressed optimism about future economic performance. He blamed the negative GDP figures on his predecessor’s policies and urged patience for his own economic policies to take effect. The artificial intelligence sector remained strong despite trade tensions and tariff threats.
Microsoft CEO Satya Nadella noted that a significant portion of the company’s code is now written by AI, highlighting ongoing technological advancements and investments.
Economic outlook amid trade policies
Energy stocks experienced their worst April on record, with the sector falling around 14.5% since the beginning of the month.
Major losses were observed across key energy stocks. As April concluded, Palantir and Netflix emerged as top performers. Palantir’s stock rose more than 36% month-to-date, while Netflix saw a 20% increase.
Retail investors have been a significant force in the market. Goldman Sachs’ Christian Mueller-Glissmann pointed out that elevated VIX levels have historically been followed by positive returns over the following 12 months. JPMorgan Chase reported that retail traders net bought $40 billion in April, setting a new record for the most significant monthly inflow. Despite the stock market’s attempts to recover from a steep decline blamed on President Trump’s tariffs, the S&P 500 and Dow posted their third consecutive month in the red, their longest monthly losing streak since 2023.
The Nasdaq achieved a gain of 0.85% across the month. Investors are now assessing whether the United States will enter or avoid a recession in the coming months. Uncertainty lingers about how Trump’s trade policy might continue to impact the economy and markets.
