Financial headlines in the first quarter were dominated by conversation around tariffs. Just a few weeks after the Trump administration was in place, the first set of new tariffs was announced. Later in the quarter, the trade war escalated as countries threatened to take retaliatory measures. Questions and concerns started to arise as President Trump alluded to more tariffs without providing much detail. These questions were answered on April 2nd, designated “Liberation Day,” when Trump announced widespread tariffs on countries around the globe, from those considered long-time economic allies to those he deemed to be offenders of American trade agreements. Markets turned sharply lower as they grappled with whether Trump was simply posturing to get countries to come to the table to renegotiate trade terms, or whether this was a long-term change in policy.
The US market’s “Magnificent 7” stocks had negative returns over the quarter. According to Bloomberg, the Magnificent 7 was down 16% in the first quarter and erased $2.4 trillion in market value. This was, in part, driven by the announcement from Chinese AI company, DeepSeek, which showcased the emergence of a low-cost artificial intelligence model that cast doubts on the estimated chip production that will be required for future AI computing. The release of this technology drove Nvidia’s stock to decline $593 billion dollars in a single day, a record one-day loss in market value for any company on Wall Street.
Despite the fallout in the US stock market, the US economy had a few positive reports over the quarter. In February, CPI came in at 2.8% which was lower than the 3% figure seen in January. Additionally, employment remained strong; the economy exceeded expectations by adding 228,000 jobs in March, and much of this hiring happened in the private sector. Despite falling inflation and strong hiring, the Fed decided to maintain a rate target between 4.25-4.5%, where they have been since December.
In the housing market, the 30-year fixed rate mortgage rose above 7% during the quarter, which was a level not seen since May of last year. Rates eventually came back down toward the end of the quarter; however, affordability continues to be a major problem for potential home buyers.
Oil prices rose to start the year and declined toward the end of the quarter. Despite movements in WTI prices, the national average for the price paid at the pump remained relatively flat throughout the quarter.
FIRST QUARTER EQUITY INDEX RETURNS
Global market returns were a mixed bag over the first quarter. US stock markets saw negative returns across most of the market; however, US large cap value stocks were a bright spot. Despite uncertainty around the future effects of tariffs, international developed and emerging markets performed well, delivering strong positive returns.
FIRST QUARTER ALTERNATIVE INDEX RETURNS
Global REITs had a volatile 2024, starting the first two quarters off negatively, gaining in the third quarter, and then giving gains back in the fourth quarter. The asset class started 2025 off positively as the commercial real estate market continues to find its footing. High yield bonds had a positive quarter following a strong 2024.
FIRST QUARTER FIXED INCOME INDEX RETURNS
US bonds performed well as the US government yield curve dropped across the maturity spectrum. This was in part driven by a flight to safety due to the volatility in equity markets.
The first quarter emphasized the importance of diversification across asset classes. While US markets have dominated performance over the last few years, exposure to bonds and non-US equities helped smooth out the investment returns in the first quarter. While uncertainty persists in markets, we continue to remain disciplined and adhere to our long-term investment plan. We encourage you to call with any questions or concerns.
We hope you enjoy the spring, and we look forward to working with you throughout the year!