Market Commentary March 31, 2025
Index | 1Q 2025 | Trailing 12mo |
S&P 500 | -4.6% | 6.8% |
S&P 500 Equal Weight | -1.1% | 2.2% |
MSCI EAFE | 6.2% | 2.2% |
Bloomberg US Int. Term Corporate Bond | 2.3% | 6.3% |
2025 is off and running and so far, appears to be on a different course than the last two years. The S&P 500 decreased -4.6% in Q1 and is up 6.8% over the trailing 12 months (TTM). The S&P 500 Equal Weighted (S&P EW) was also down for the quarter at -1.1%, and up 2.2% TTM. International stocks fared much better in the quarter as the MSCI EAFE Index increased 6.2% in Q1 and is up 2.2% TTM. Bonds were up in Q1 as the Bloomberg US Intermediate Term Corporate Bond Index increased 2.3% and has returned 6.3% TTM.
So far, 2025 is looking like a very different year in the markets than what we saw in 2023 and 2024. Particularly, the so-called Magnificent 7 have all been less than magnificent with all but Meta underperforming the market year-to-date. The drag on the market by the “Mag 7” has been so pronounced that had they been excluded from the index the S&P would have ended the quarter slightly positive. However, aside from poor performance in the “Mag 7” the appetite for growth stocks in general has cooled with higher yielding dividend stocks and low volatility stocks being the best performing factors so far in 2025.
This shift in investment factor preference can also be highlighted by the differential in performance between the S&P EW and S&P. As we noted above, the equal weighted index outperformed its market cap weighted peer by 3.5%. To summarize, market dynamics in 2025 so far are showing a significant shift from the dominant trends in 2023 and 2024.
2023 and 2024 were two years of banner market performance returning 24.2% and 23.3% respectively. Since 1929 there have only been five instances of three years in a row of double-digit S&P 500 returns, with the most recent being 2019 through 2021. Additionally, since 2019 we have had 5 out of 6 years of double-digit market returns, the fact that the market appears to at least be taking a breather now seems warranted and not out of the ordinary historically.
Looking in to the “why” of the market for the first quarter of 2025, one issue has so far stood above the rest. Trade policy has been a large factor in market psychology this year. As of the end of the first quarter, markets awaited the announcement of details of the Trump administration’s sweeping tariff plan. During the quarter, the threat of tariffs exceeded the implementation of them, which caused a great deal of uncertainty in the market. Additionally, throughout the quarter we heard public company executives en masse discuss the expected impacts of tariffs on their businesses with many unable to gauge the severity due to limited visibility to exactly what the policies would entail. As a result, forward looking guidance from companies on growth and profitability expectations has been cautious and investors have mirrored that caution with a preference for low volatility and higher dividend paying stocks.
Subsequently, as the second quarter started, the administration announced its reciprocal tariff plan resulting in a significant selloff in US equity markets.
Consumers have also been cautious, reflected by the University of Michigan’s Consumer Sentiment survey which has declined since December. This comes as many expect the impact of tariffs could spur additional inflation and be a headwind to economic growth. In the previous Trump administration, the President appeared sensitive to stock market and consumer reactions to his policies. So far in this second administration the messaging has acknowledged a willingness to accept impacts to the market and economy; how long they can abide a souring market and electorate remains to be seen.
Q1 of 2025 for bonds was a tug of war between perceived inflationary pressures and fears around slowing growth in the economy and labor markets. Policy uncertainty and the effects thereof created volatility. Market expectations for rate cuts from the Federal Reserve swung broadly from expectations of no rate cuts in 2025 to as much as 4 cuts over the year. Ultimately, longer term rates trended broadly down, resulting in positive index performance.
As always, if you have questions regarding your portfolio, please consult your financial advisor. We appreciate your continued trust in SG Long Financial and look forward to working with you in the future.
Rob Richardson, CFA
Chief Investment Officer
Important Disclosures
Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal. The S&P 500 Index is a recognized benchmark used by investors and the investment industry for the equity market. Indexes are not a managed portfolio and are not subject to advisory fees or trading costs. Investors cannot invest directly in the S&P 500. Indexes and/or market benchmarks references used throughout this report remain the copyrighted property of their respective owners. Before investing, please carefully consider your investment objectives, risks, charges, and expenses. Views expressed do not necessarily represent the views of S.G. Long Financial Service Corp. (“SGLFS”) and are subject to change at any time based upon market or other conditions. The information provided is for general informational purposes only and should not be considered individualized or personalized investment advice.
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