Insights

First Quarter, 2025 Market Review

April 18, 2025

Dear Clients,

Headlines rarely provide solace, and the first quarter of 2025 was no exception. The news cycle was dominated by trade tensions, recession fears, inflation concerns, and ongoing fiscal policy debates, all contributing to heightened uncertainty and significant market volatility. After delivering a remarkable 57.8% total return over the previous two years—its best performance since 1998—the S&P 500 experienced a sharp decline of over 10% in late February and early March, briefly entering correction territory. For the quarter, the index posted a -4.3% return, marking its worst performance since the peak of the rate-hiking cycle in 2022.

The selloff has been particularly brutal for the “Magnificent Seven” stocks. On average, shares of Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla have tumbled about 16% this quarter.

Cryptocurrency: A Hedge That Wasn’t³

For years, proponents of cryptocurrencies have touted their potential as a hedge against traditional market risks, arguing that they offer low correlation with broader equity markets. However, the first quarter of 2025 provided a stark reminder of crypto’s volatility. Bitcoin, often seen as a barometer for this space, dropped 11.9%, mirroring the decline in tech stocks. Meanwhile, Ether experienced an even steeper fall, plummeting 45.9%. Despite a brief rally following inauguration, cryptocurrency markets faced significant headwinds as investors rotated away from riskier assets.

A Broader Market Perspective: Not All Bad News

While the U.S. market faced significant headwinds, it’s important to note that not all segments of the global economy performed poorly.

Strength in International Markets³
While U.S. equities struggled, international markets demonstrated resilience, offering some positive contrast. After several years of lagging behind the U.S., markets in both China and Europe experienced strong gains. Chinese stocks surged 15.1%, supported by fiscal stimulus measures and ongoing economic reforms. Similarly, eurozone markets climbed 10.6%, buoyed by aggressive government spending aimed at fostering economic growth and strengthening defense capabilities.

Germany’s shift away from its historically strict fiscal discipline led to a 15.6% jump in its markets, while the UK saw a solid gain of 9.7%. In addition, Japan and Canada ended the quarter on a positive note, rebounding from declines late in 2024. This shift highlights a growing diversification of global growth drivers, as regions outside of the U.S. display increased strength.

Value vs. Growth: A Shift in Market Leadership⁴
As the once-dominant Big Tech sector started to face challenges, the market leadership began to shift from growth to value stocks. Value stocks outperformed growth stocks across U.S., international, and emerging markets in both March and the first quarter. Large-cap value stocks led gains, with U.S. large-cap value rising over 2%, international large-cap value up more than 11%, and emerging market large-cap value as the top performer in its category. In contrast, small-cap growth stocks lagged, with U.S. small-cap growth posting modest gains and emerging market small-cap growth declining over 7%.

Bond Market & Yield Curve Dynamics²
Fixed income remained a bright spot in the first quarter as investors sought safety. The U.S. Bloomberg Agg Index returned 2.78%, while TIPS gained 4.17% as inflation concerns lingered.

The Treasury yield curve continued steepening after un-inverting last year. By quarter-end, the spread between the 10-year and 2-year Treasury yields had widened slightly to 0.34 percentage points. Historically, a steepening yield curve has signaled improving long-term growth expectations.

Volatility: Not Always the Villain

Market turbulence can be unsettling. But as always, a little perspective goes a long way. Volatility is often associated with bad news, but it’s a natural part of how markets function—adjusting in real time to new information.

History shows that markets frequently rebound after periods of heightened volatility. In March 2020, the VIX hit an all-time high, yet within days, the S&P 500 began a powerful recovery, rallying 144% through March 2025.⁵

When Markets Decline

Market pullbacks are more common than some may think. A 5% decline occurs on average three times per year. Market corrections of 10% or more are also surprisingly common and happen on average once per year.

Since 1926, the S&P 500 has seen 18 bear markets lasting a combined 177 months, while 19 bull markets have lasted nearly 1,000 months.

Staying the Course

With so much market noise, it’s easy to feel like you’re navigating stormy seas. But through all the ups and downs, markets have continued their long-term upward climb. Your portfolio is designed to harness that growth, with diversification and disciplined rebalancing helping to smooth the ride.

The only reason to adjust your investment strategy is if your personal goals or circumstances change—not because of short-term market swings. When that time comes, we’ll be here to help.

Thank you for your continued trust and partnership.

THE LOURDMURRAY TEAM

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³Data from 12/31/2024 – 3/31/2025. Source: YCharts. Chines stocks, eurozone markets, Germany, UK are represented by MSCI China TR Index, MSCI Eurozone TR Index, MSCI Germany Index, MSCI UK TR Index.

⁴Data from 12/31/2024 – 3/31/2025. Source: Avantis and FactSet. U.S. Equity, International Developed Markets and Emerging Markets Equity style boxes are represented by Russell, MSCI World ex USA and MSCI Emerging Markets indices, respectively.

⁵Data from 3/23/2020 – 3/31/2025. Source: YCharts