The leading U.S. stock market indices posted impressive 2024 gains. The tech-heavy NASDAQ led the way on the upside with a 28.64% 2024 gain, the S&P 500 was 23.31% higher last year, and the DJIA rose 12.88% in the year that ended on December 31, 2024. The VIX index, measuring the implied volatility of S&P 500 stocks, closed 2024 at the 17.35 level.
The equity markets corrected in Q1, with a 10.42% decline in the NASDAQ, a 4.59% drop in the S&P 500, and a 1.28% fall in the DJIA. The VIX index rose to 22.22 on March 31, 2025. The stock market continued to fall in April, reaching lows on April 7 as the market digested the Trump administration’s trade policies after “Liberation Day,” on April 7.
The leading indices fall to lows on April 7
The leading indices closed Q1 at the following levels:
- S&P 500 at 5,611.85
- The DJIA at 42,001.76
- The NASDAQ at 17,299.29
On April 7, the indices fell to their most recent lows.
As the chart shows, the S&P 500 fell 13.8% from the Q1 closing price through the April 7 4,835.04 low and was below the Q1 closing level in late April.
As the chart shows, the DJIA fell 12.8% from the Q1 closing price at the April 7, 36,611.78 low, and was below the Q1 closing level in late April.
As the chart shows, the NASDAQ Composite fell 14.5% from the Q1 closing price on April 7, to a 14,794.45 low and was below the Q1 closing level in late April.
The VIX spikes higher
The VIX index measures the implied volatility of put and call options on the S&P 500. The VIX tends to move higher when stocks rally and lower when they fall.
The daily chart shows the VIX rose to a 60.13 high on April 7, the fifth-highest level since 1990. Since April 7, the VIX has dropped to the 26.37 level and remains elevated as stocks have recovered but uncertainty persists.
A recovery as the stock market awaits the fallout from tariffs
In late April, stocks are higher than the April 7 low and lower than the end of March 2025 closing level. The tariff situation remains a clear and present danger to the stock market in late April as the Trump administration continues negotiating with global trading partners. However, stocks are off the worst levels seen on April 7 as market participants await the final tariff levels and their economic impact. Moreover, even if many countries can come to terms with the U.S. administration, the standoff with China could continue over the coming months.
The factors weighing on stocks
The following factors are weighing on the U.S. stock market in late April 2025:
- Tariffs could lead to increasing recessionary pressures.
- Long-term interest rates remain high, which attracts capital flows from stocks to fixed-income assets.
- The Fed has not cut the short-term Fed Funds Rate as the central bank remains concerned that the trade barriers could increase inflationary pressures.
- The leading stock market indices reached record highs over the past months, and corrections are not atypical.
- The stock market tends to fall during periods when uncertainty rises.
While the long-term stock market trends remain bullish, the short and medium-term path of least resistance is bearish in late April 2025.
The case for a resumption of the bullish trend
The case for a return to a bullish stock market includes:
- The long-term trends remain higher. The recent correction has not negated the long-term path of least resistance.
- The outcome of the tariffs remains uncertain. If negotiations are positive, stocks will likely react by rallying from the current levels.
- If Congress passes President Trump’s agenda by the end of May, the administration’s tax initiatives could boost the stock market.
- Inflation has been moving toward the Fed’s 2% target. If the central bank begins cutting the Fed Funds Rate and long-term rates turn lower, capital will likely flow from bonds to stocks.
Even the most aggressive bull markets rarely move in straight lines. U.S. stocks have been in a bullish trend for years, and the odds favor an eventual resumption of the trend when the tariff situation ceases to cause the current level of uncertainty.
