Full Court Press
April 8, 2025
Running the Floor
March was filled with many bracket busting moments. The sell-off in equity markets that began mid-February continued unabated. The ‘mag seven’ (i.e. a basket of highly valued technology-based stocks whose valuation generally categorizes them as mega-caps) returned -10.17% as tracked by the Bloomberg Magnificent Seven Total Return Index. Unfortunately, their tournament dreams faded quickly after an early knockout. Going into the month, new tariffs for Mexico and Canada as well as increased tariffs on goods from China had already been signed and scheduled to go into effect later this year.1 On March 3 The White House doubled-down on those impacting Mexico and Canada.2 The tariffs have had a particularly strong effect on these top seven names because many of those companies rely on tech products that are often imported from China specifically.3
As evidenced by the sale of stocks and risky bonds for gold and treasuries there exists fear about future economic growth because of threats to the global supply chain, rising concern about trade wars, and higher consumer costs. While the ‘mag seven’ may have led the fall, the S&P 500 and NASDAQ followed closely behind returning -5.63% and -8.14% respectively. Equity markets have struggled to perform under persistent inflation, high borrowing rates, changing political policy, and recent advances in technology.
Fast Break
This equity market strain is a clear sign of economic uncertainty, and with economic uncertainty on the rise, the Fed made the decision to hold rates steady. Bloomberg's World Interest Rate Probability (WIRP) function continues to predict the next cut to take place in late summer. Moreover, this economic uncertainty has led to an evident ‘flight-to-quality’. This trading strategy takes place when holders of riskier corporate bonds exchange those positions for safer government bonds. This strategy can also include shortening the duration of a portfolio. Both effects have been noted by a rising demand for US Treasury notes. Fixed income can be considered a conservative or defensive investment, so that when the “offense” (i.e. equities) struggles, the “defense” can step up and help the team. This analogy played out as debt markets starred over equities with a last second performance for March. With negative returns during most of the month it was surprising to see a buzzer beating recovery just as the month closed. As tracked by Bloomberg's Global Aggregate Unhedged Total Return index, fixed income returned +0.04%.
Hard in the Paint
International market returns were clearly the result of some patchwork. Developed markets returned -4.15% as tracked by the MSCI All Country World Index (ACWI). This beat out domestic equities but still trailed emerging market returns. A well-diversified portfolio may include emerging market investments, and this month is a chance where the benefits of that diversification can be highlighted. Throughout March emerging markets, as an asset class, were the top contributors to many of these well-diversified portfolios. As tracked by the MSCI Emerging Markets Index, Emerging markets returned +0.64%. Emerging markets could be outperforming right now because according to the Dollar Index (DXY) Forecasts the US dollar is weakening relative to other major currencies. During the month, DXY Dollar Index Forecasts returned -2.35%.
Taking it to the Hoop
The first quarter of 2025 has been a tight game. Inflation data has the potential to cause an upset that could encourage the Fed to cut rates sooner than expected- the next inflation report is due April 10th. Geopolitical activity has the potential to stimulate, or further deteriorate, both domestic and international markets. Changes in labor supply and the continued growth of technology have the potential to specifically influence domestic equity markets. In all these respects market activity will continue to reflect this evolving landscape.
Hazel Allen
Portfolio Management Analyst
1 https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-imposes-tariffs-on-imports-from-canada-mexico-and-china/
Published February 1, 2025; Accessed March 31, 2025
2 https://www.whitehouse.gov/fact-sheets/2025/03/fact-sheet-president-donald-j-trump-proceeds-with-tariffs-on-imports-from-canada-and-mexico/
Published March 3, 2025; Accessed March 31, 2025
3https://finance.yahoo.com/news/how-trump-tariffs-would-push-big-techs-ai-data-center-costs-higher-100030565.html Published March 31, 2025;Accessed March 31, 2025
The Bloomberg Magnificent 7 Total Return Index is an equal-dollar weighted equity benchmark consisting of a fixed basket of 7 widely traded companies classified in the United States and representing the Communications, Consumer Discretionary and Technology sectors as defined by Bloomberg Industry Classification System (BICS).
The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices.
The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market, and itis highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies.
Bloomberg's World Interest Rate Probability (WIRP)function is a chart that shows the probability of different interest rates for the US benchmark rate. The chart is based on interest rate caps and floors, as well as options on Treasury futures.
The Bloomberg Global Aggregate Unhedged Total Return Index is a benchmark that measures the value of global investment grade debt. It includes fixed-rate bonds from developed and emerging markets and is reported in US dollars.
The MSCI All Country World Index (ACWI) captures large and mid-cap representation across Developed Markets (DM) and Emerging Markets(EM) countries. The index covers approximately 85% of the global investable equity opportunity set.
The MSCI Emerging Markets Index consists of 23 economies including Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates. The MSCI is a float-adjusted market capitalization index.
The U.S. Dollar Index (DXY) is an index of the value of the United States dollar relative to a basket of foreign currencies.
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