Jessica R. Ness, CFP® (Principal), Kevin E. Donovan, CFA (Portfolio Research Director) and, Parker G. Trasborg, CFP® (Principal) discuss markets in the first quarter of 2025, and the importance of staying diversified.
Introduction
Parker G. Trasborg:
Hello, everyone. Thanks for tuning in. My name is Parker Trasborg and I’m a Senior Vice President with CJM Wealth Advisers. And today I’m joined by Kevin Donovan, our Portfolio Research Director and one of our Principals, Jessica Ness. Jess, thanks for joining us today.
We wanted to spend a couple minutes to discuss markets during the first quarter of 2025. Kevin, it was a very strong year, two years in a row, 2023 and 2024. But so far this year, markets have bounced around a little bit. What’s going on?
Market Performance Overview
Kevin E. Donovan:
Yeah, I wish I had better news for you, but unfortunately the US stocks, the indexes were down for the year, so far at least in the first quarter. So why don’t we look at the charts of market performance, and you can see your data in the first quarter, the S&P 500, that purple line at the bottom was down about 4.5%. Now, the Dow Jones Industrial did a little better at 1.3%. Basically, it was a difference between growth stocks and value stocks. So the growth stocks that had performed really well over the past two years, all the tech stocks like NVIDIA, Amazon and all the major Magnificent Seven stocks did pretty poorly in the first quarter of this year.
But you can see from the chart that the green line represents the bond index that was positive in the first quarter, up 2.8% and international stocks were up the first time in quite a while. The main index there was up about 6%. So 4.5% percent not that bad when you think about it in terms of past selloffs. But if you look at the next chart, this shows how far we are off of the peak. So in the beginning of the quarter up through February, markets were doing pretty well, they were positive. Basically, we had really good earnings, corporate earnings that were reported up to that point.
Economic Uncertainty and Inflation Concerns
But then in mid-February, some of the tariff uncertainties started to be felt by the markets and we had a big selloff, which resulted in us hitting correction territory, which is when the S&P 500 is down 10%. We were at that point in March 13th and then we recovered a little bit off that, we were only in that 10% selloff territory for one day.
But the uncertainties makes it hard for companies to plan going forward, and that caused a lot of economists to lower their forecasts for economic growth for the rest of the year. It led to some inflation worries that tariffs may increase prices for consumers and that put a real damper on consumer sentiment. Even though for the quarter rolling down 4.5%, it kind of feels like it’s worse because we’re 10% off of the highs for the year.
Parker G. Trasborg:
Right. And that’s why we always say markets hate uncertainty. So Jess, what are your takeaways from the first quarter?
Importance of Diversification
Jessica R. Ness:
Main takeaway is diversification is key. Unlike the past few years, as Kevin had mentioned, really the Magnificent Seven took the markets higher. This year, as we saw in the charts, diversification has been huge, not only diversification of stocks and bonds, but within stocks and bonds. So international stocks are finally doing quite well here. I know just a quarter, but really seeing that diversification work for us, and that’s been huge because we always expect a 10% downturn any 12 to 18-month period no matter what causes that downturn. Historically, that’s what’s happened and we have recovered out of that. Not sure what’s going to take us out of the recovery and again, diversification is key to make sure we’re there and taking advantage of whatever opportunity comes our way going forward. So for me, the last quarter just reinforces the confidence that I have in our long-term diversified portfolios.
Parker G. Trasborg:
That’s a great point.
Market Resilience and Historical Perspective
Kevin E. Donovan:
Yeah. Let me just point out one more thing. I have one more chart to throw up there, and this shows the intra-year declines in the S&P 500 versus how the S&P 500 has ended up at the end of the year. So this is kind of a busy chart, but the red numbers on the bottom show the biggest decline from the peak to the trough for the S&P 500. And then the black bars show where the index ended up in the returns for the whole year.
And you can see that even though some of these red numbers on the bottom are very large. In 34 of the 45 years that this chart covers, the S&P ended up in positive territory. Even looking back just to two years ago, in 2023 the S&P 500, the biggest decline was 10%, just like it is this year so far, but the index ended up 24% by the end of the year. Now I’m not saying that’s going to happen this year, but the market has recovered from selloffs similar to this in the past and hopefully, we’re going to see market resiliency continue throughout the rest of the year.
Closing Remarks and Upcoming Events
Parker G. Trasborg:
Right, and who knows what could happen that sparks that to turn around a little bit. As Jess said, diversification continues to be the key, markets don’t like uncertainty, and we’ll see where the rest of the year leads as we enter earning season yet again.
That’s all the time we have for today. Kevin and Jess, thank you as always for sharing your thoughts. Viewers, thank you so much for joining us. We wish you all a very nice spring season. And just a little note, we do have a couple events coming up. We have our shredding event coming up in early May, which will be here at the office for our local clients. And we are also planning a webinar about cybersecurity here towards the end of April, and we will send out some details about both of those events here shortly.
Again, wish you all a very happy spring and we will see you next time. Thank you.
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