First quarter 2025 review of markets

The first quarter of 2025 is now in the bag.  Expectations for risk assets including US stocks were high at the end of 2024, with the consensus of Street analysts projecting a full-year return for the S&P 500 of 9% (to 6,600) according to The Wall Street Journal.  However, the quarter proved to be rockier and significantly worse than expected, at least for US stocks.  The erosion in investor confidence gained steam as the first quarter wore on with the S&P 500 delivering negative returns for five of the last six weeks of the quarter.  The broad US stock indices were all lower in the first quarter, with the formerly high-flying NASDAQ being the hardest hit.  Prior to this year, US stocks had had two incredibly strong years with much of the gains in the indices being driven by the infamous Mag 7 stocks. Although we are only one-quarter of the way through 2025, the consensus growth in the S&P 500 for the year of 9% looks very ambitious.  In fact, Goldman Sachs has already cut its full year forecast for the S&P 500 twice, first from 6,500 to 6,200 several weeks ago, and on Monday from 6,200 to 5,700.  Goldman is unlikely to be the only bank to revise their growth estimates down given the current direction of travel of markets.

The best performing asset by a healthy margin in the first quarter was gold, which chalked up a return of 19.6%.  The worst performing asset was Bitcoin, which lost 11.5% in the first quarter.  US Treasuries delivered solid returns in the first quarter following a disappointing 2024, although volatility was high, and the outlook remains unclear with economic headwinds and higher inflationary expectations battling at the intermediate and longer-end of the curve.  Cash and European equities also performed very well, illustrating the benefits of portfolio diversification.  The graph below is from an article in #Bloomberg on Monday regarding global stock returns for 1Q2025.

Below are a few tables to provide you with some context for the first quarter compared to the previous five full years.  Where we will go from here is anyone’s guess.  Personally as you will read soon in my own 1Q2025 portfolio update soon, I have slightly increased my cash position but remain largely invested in defensive stocks (although I have paid a price for my Mag 7 holdings).

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