Recent Markets: Q1 2025
The big news is what occurred last week. Please indulge us for a moment to review what happened during the first quarter. U.S. stocks, as measured by the S&P 500 were down over 4%. The large growth and small segments were down about twice that. On the other hand, U.S. large value stocks and U.S REITs were up about 2% and the foreign markets were generally up over 7%. U.S. bonds were positive and gold responding to uncertainty, was up 19%.
The good news was that while some parts of the market were down, others were up, showing the potential benefits of good diversification.
Then on Wednesday, April 2nd, President Trump unveiled his plan to impose tariffs on all imported goods to the United Sates. The tariff rates were more aggressive than most people expected and caused an abrupt response from the markets. Stocks worldwide sold off sharply with the S&P 500 dropping 10% in the next two trading days. Foreign stocks dropped 8½%, giving up their 1st quarter gains and gold declined 2.9%. Conversely, intermediate bonds, as a useful diversifier, were up about ½% for the two days. If fully enacted, the planned tariffs would amount to the largest effective tax increase in modern U.S history, equivalent to an estimated 1.6% of GDP, and would most likely slow economic growth and raise inflation.
What remains to be seen is whether other countries retaliate or negotiate. There is still considerable uncertainty around the holistic impact and true intent of both the U.S. and any reciprocal tariffs. In some respects, this uncertainty is a bigger risk than the tariffs themselves.
While a recession is not a given, the lack of clarity around these tariffs has slowed economic growth and increased the odds that a recession might occur. No one can tell what will happen next. Market volatility is uncomfortable and can be frightening, but remains a normal part of long-term investing. Historically, the S&P 500 has experienced 10% corrections or negative returns in 60% of calendar
years. Yet, over the long-term stocks have provided solid growth. We are reminded of what Warren Buffett is quoted as saying, “Be fearful when others are greedy, and greedy when others are fearful.”
We believe investors are best served by focusing on their overall strategic goals and diversification needs and not reacting to short term events and news.
Let us know if we can help!
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Past performance does not guarantee future results. Nothing contained in this communication may be relied upon as a guarantee, promise, assurance, or representation as to the future. Market conditions can vary widely, and market and economic events having a positive impact on performance may not repeat. No diversification or asset allocation strategy can eliminate investment risk, losses, or protect against loss in declining markets. All investments involve risk including loss of principal. Investing in fixed income securities (bonds) involves interest rate risk, credit risk, and inflation risk. Investing in stocks involves volatility risk, market risk, business risk, and industry risk. International investing involves additional risks including, but not limited to, changes in currency exchange rates, differences in accounting and taxation policies, and political or economic instabilities which can increase or decrease returns. Investors should consider the objectives, risks, and charges and expenses of an investment carefully before investing.
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