Markets Dropped 19%—Now What?

Uncertainty, Opportunity, and What Comes Next

Well... that was scary.

In just six weeks, markets fell 19%. Volatility like that is unsettling, no matter how seasoned an investor you are.

On May 2nd, the S&P 500 briefly crossed the symbolic “Liberation Day” level of 5,670.97—a number many are watching closely. If we decisively break through this mark to the upside, it could signal continued near-term momentum.

Trade Deals on the Horizon?

The 90-day extension on tariff negotiations ends in early July. Between now and then, we’re likely to see headlines about trade deals. I expect the White House will announce either one major agreement with a large trading partner—or several deals at once. The politics of being the "first mover" may be at play, as no country wants to set the benchmark others will follow.

Negative GDP—But a Deeper Story

The economy shrank at an annualized rate of -0.3% in Q1—the first quarterly decline since 2022. But the culprit may not be weakness in the U.S. economy itself. The largest drag came from a surge in imports, as consumers and businesses front-loaded purchases ahead of expected tariffs. Imports subtract from GDP because they represent spending on goods produced abroad.

So, does this mean a recession is near? Here’s what some major firms think:

- Morgan Stanley: 40% chance

- Goldman Sachs: 45% chance

- JPMorgan: 60% chance

Take those odds with a grain of salt. In 2023, a recession was the base case for many—and it never showed up. For perspective, the historical average probability of a recession in the next 12 months is 15.14% (source: YCharts).

Strength Beneath the Surface

Despite the headline GDP number, the underlying data remains strong (source: First Trust).:

- Consumer spending—the engine of the U.S. economy—continues to grow year over year.

- Business investment in equipment is up 22.5% in the past 12 months.

- Industrial production and manufacturing have both risen more than 5%.

Of course, this is all backward-looking. Some consumers and businesses are now pausing spending, waiting for clarity on tariffs and global conditions. If that hesitation lingers, it could eventually snowball into broader weakness. But today, the fundamentals remain solid.

Corporate Earnings & AI Investment

As of early May, 72% of S&P 500 companies had reported Q1 earnings—and 76% beat expectations. That’s encouraging. However, more companies are suspending forward guidance, citing uncertainty around tariffs and regulation (source: FactSet).

On a positive note, AI infrastructure spending by the world’s most innovative companies shows no signs of slowing. That long-term investment tells us where business leaders are placing their bets—and it’s not in fear.

A Global Shift & the Case for Diversification

Just one year ago, few imagined developed international markets meaningfully outperforming the U.S. Yet here we are: international stocks have outpaced U.S. equities by the widest margin since 1993, while the dollar has weakened 8%. I still believe the U.S. is the best house on the block—but this is exactly why global diversification matters.

Where Do We Go from Here?

Momentum appears to be driving markets higher. Investors are looking past the noise and pricing in the potential for lower taxes, lighter regulation, and real progress on trade.

Uncertainty is a constant, but it always comes back to the businesses. Over the long run, markets tend to follow business fundamentals—and we are fortunate to be living in a time with some of the best-run companies in history. That doesn’t change overnight.

Closing Thought

Whether the headlines are good, bad, or confusing, your financial plan should be built to weather all seasons. If you have questions or want to discuss how current events may impact your goals, I’m here.

"Any opinions are those of Michael Fitzgerald and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this material does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Past performance may not be indicative of future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation." The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.