Global stocks fell around 1% during the first quarter, with weakness in U.S. stocks offset by positive returns in international markets. Bonds had a strong quarter, returning 2.8% as investors moved into “safer” assets.
Inflation remains in check and unemployment is still around 4%. However, the outlook has been clouded by the announcement of new tariffs, and consumer confidence has reached historically low levels.
Since the end of the quarter, stock markets have sold off on uncertainty driven by announcements on tariffs, the administration, and concerns around higher inflation and weaker economic growth in the near term.
Economic Update
The economy had good momentum coming into 2025. Job creation had been solid and inflation had trended down from the start of 2024, although there had been some upward pressure on prices in recent months. However, recent tariff announcements have led to a more uncertain outlook for consumers and businesses. This, combined with a stock market downturn and softer economic data, has increased concerns.
Source: Russell Investment Economic and Market Review, First Quarter 2025
In early April, an announcement of a 10% tariff on all imports and retaliatory tariffs towards specific trade partners clouded the economic outlook. In the near term, these tariffs may likely push prices higher and potentially weigh on growth. Also, the level and timing of tariffs have changed often. This has led to lower consumer confidence and higher uncertainty among business leaders.
The U.S. economy is around 70% consumption, and a decline in consumer confidence could lead to lower spending levels. Also, businesses with limited visibility may be less likely to hire and invest in the near term, which may also weigh on growth.
Source: JPMorgan Guide to the Markets, April 10, 2025
Additionally, tariffs have put policymakers in a challenging position. Overall, inflation has generally been moderate, and unemployment remains around 4%. Lower inflation would allow the Federal Reserve to focus more on keeping the job market strong; however, recent policy announcements may change the trajectory of interest rates.
Equity Recap
During the first quarter, global stocks continued to show the middling returns that investors experienced during the fourth quarter. However, U.S. stocks weighed on returns during the first quarter, particularly those of large technology companies. As of April 10th, the group of stocks known as the “Magnificent Seven” had returned -19% while the rest of the companies in the S&P 500 Index returned -4.3%. This has led to a -10% decline in U.S. large-cap stocks year to date, as stocks declined in the first half of April.
Source: Dimensional Fund Advisors; as of March 31, 2025
Conversely, international stocks have produced relatively strong returns this year, with international developed markets up 2% and emerging markets down 4%. The weak U.S. dollar and more expansionary fiscal policy have boosted performance abroad. Additionally, international markets started the year at relatively more attractive valuation levels.
Source: Goldman Sachs; as of April 8, 2025
At this point, U.S. equities are still trading at valuations above long-term averages, even after the declines experienced this year. Earnings are still projected to grow around 10%. However, estimates have begun to come down, and several companies have withdrawn their guidance amid shifting trade policy.
Source: JPMorgan Guide to the Markets, April 10, 2025
With U.S. stocks down almost 20% from their highs, history has shown that returns over the next 12 months are positive over 80% of the time and often register in the double-digits. As referenced on the chart above about consumer confidence, when consumer sentiment is this low, it usually points to an overly pessimistic view, leading to strong returns in the future. However, with uncertainty elevated and the economic outlook changing daily, stocks could move lower in the near term.
Source: Russell Investment Economic and Market Review, First Quarter 2025
Fixed Income Recap
Over the first three months of the year, bonds saw strong returns as interest rates declined and investors moved into safer assets such as high-quality fixed income. However, the segments of the market with credit risk have underperformed. As of April 10, 2025, investment-grade U.S. bonds have returned 1.3%, while investment-grade corporates have returned -0.1%, and high-yield corporates are down 1.5% as credit spreads have widened.
Bond yields remain well above 10-year averages and are much higher than four years ago. With the inflation and growth outlook uncertain, the path for future rates is unclear. However, a starting yield of 4.8% for the broad U.S. investment-grade market means that there is solid income to offset any price volatility. Starting yields are a strong predictor of bond returns over the next five years, meaning the outlook for the next five years is higher than the results investors have experienced over the past five years.
Source: JPMorgan Guide to the Markets, April 10, 2025
2025 Outlook & Beyond
Going into the year, we noted high valuations in U.S. large-cap stocks and the importance of diversification. Although diversification does not always work, investors have benefited from stock exposure outside the U.S. and by owning companies with less expensive valuations this year. The recent pullback in the market is giving investors the opportunity to own high-quality companies at more valuations, and we believe it offers an attractive entry point when looking out 5-10 years.
Staying disciplined is especially important during market downturns, and we remain focused on implementing our long-term strategy in client portfolios. This includes remaining diversified, rebalancing as opportunities present themselves, and making adjustments as appropriate.
If you are a client of our firm, we have created your portfolio to withstand all types of markets. If you are not a client and have not stress-tested your portfolio or do not have a well-designed plan to navigate uncertain times, perhaps now is the time to do so. We stand ready and available to assist you.
Dan Haines
Dan joined Voisard Asset Management Group in 2024 as a Senior Wealth Manager. He is responsible for the development of comprehensive wealth management plans, the management of investment portfolios and the development of firm-wide investment strategies.
Prior to Voisard Asset Management Group, Dan co-founded and led an investment advisory firm. Prior to that, Dan worked for two multi-billion-dollar advisory firms where he focused on building tailored portfolios for clients. Dan is a CFA® charterholder and a CERTIFIED FINANCIAL PLANNER™ practitioner. He holds a BA from Calvin College and a MBA from the University of Notre Dame.
Dan serves on the boards of Kalamazoo Loaves & Fishes and Alongside Inc. He grew up in Grand Rapids and now lives in the Kalamazoo area. When he isn’t working with clients, Dan spends most of his time with his wife and daughters. He also enjoys golfing and spending time outdoors.
1st Quarter 2025 Commentary
Contributed by: Dan Haines
Market Performance Overview
Economic Update
The economy had good momentum coming into 2025. Job creation had been solid and inflation had trended down from the start of 2024, although there had been some upward pressure on prices in recent months. However, recent tariff announcements have led to a more uncertain outlook for consumers and businesses. This, combined with a stock market downturn and softer economic data, has increased concerns.
In early April, an announcement of a 10% tariff on all imports and retaliatory tariffs towards specific trade partners clouded the economic outlook. In the near term, these tariffs may likely push prices higher and potentially weigh on growth. Also, the level and timing of tariffs have changed often. This has led to lower consumer confidence and higher uncertainty among business leaders.
The U.S. economy is around 70% consumption, and a decline in consumer confidence could lead to lower spending levels. Also, businesses with limited visibility may be less likely to hire and invest in the near term, which may also weigh on growth.
Additionally, tariffs have put policymakers in a challenging position. Overall, inflation has generally been moderate, and unemployment remains around 4%. Lower inflation would allow the Federal Reserve to focus more on keeping the job market strong; however, recent policy announcements may change the trajectory of interest rates.
Equity Recap
During the first quarter, global stocks continued to show the middling returns that investors experienced during the fourth quarter. However, U.S. stocks weighed on returns during the first quarter, particularly those of large technology companies. As of April 10th, the group of stocks known as the “Magnificent Seven” had returned -19% while the rest of the companies in the S&P 500 Index returned -4.3%. This has led to a -10% decline in U.S. large-cap stocks year to date, as stocks declined in the first half of April.
Conversely, international stocks have produced relatively strong returns this year, with international developed markets up 2% and emerging markets down 4%. The weak U.S. dollar and more expansionary fiscal policy have boosted performance abroad. Additionally, international markets started the year at relatively more attractive valuation levels.
At this point, U.S. equities are still trading at valuations above long-term averages, even after the declines experienced this year. Earnings are still projected to grow around 10%. However, estimates have begun to come down, and several companies have withdrawn their guidance amid shifting trade policy.
With U.S. stocks down almost 20% from their highs, history has shown that returns over the next 12 months are positive over 80% of the time and often register in the double-digits. As referenced on the chart above about consumer confidence, when consumer sentiment is this low, it usually points to an overly pessimistic view, leading to strong returns in the future. However, with uncertainty elevated and the economic outlook changing daily, stocks could move lower in the near term.
Fixed Income Recap
Over the first three months of the year, bonds saw strong returns as interest rates declined and investors moved into safer assets such as high-quality fixed income. However, the segments of the market with credit risk have underperformed. As of April 10, 2025, investment-grade U.S. bonds have returned 1.3%, while investment-grade corporates have returned -0.1%, and high-yield corporates are down 1.5% as credit spreads have widened.
Bond yields remain well above 10-year averages and are much higher than four years ago. With the inflation and growth outlook uncertain, the path for future rates is unclear. However, a starting yield of 4.8% for the broad U.S. investment-grade market means that there is solid income to offset any price volatility. Starting yields are a strong predictor of bond returns over the next five years, meaning the outlook for the next five years is higher than the results investors have experienced over the past five years.
2025 Outlook & Beyond
Going into the year, we noted high valuations in U.S. large-cap stocks and the importance of diversification. Although diversification does not always work, investors have benefited from stock exposure outside the U.S. and by owning companies with less expensive valuations this year. The recent pullback in the market is giving investors the opportunity to own high-quality companies at more valuations, and we believe it offers an attractive entry point when looking out 5-10 years.
Staying disciplined is especially important during market downturns, and we remain focused on implementing our long-term strategy in client portfolios. This includes remaining diversified, rebalancing as opportunities present themselves, and making adjustments as appropriate.
If you are a client of our firm, we have created your portfolio to withstand all types of markets. If you are not a client and have not stress-tested your portfolio or do not have a well-designed plan to navigate uncertain times, perhaps now is the time to do so. We stand ready and available to assist you.
Dan Haines
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