Market Update April 15, 2025
The first quarter of 2025 seems like a distant memory following the fireworks that kicked off the second quarter. Looking back, stocks in the first quarter were reminiscent of two trains leaving the station in opposite directions with foreign stocks heading up and domestic heading down. The MSCI EAFE index of established foreign market stocks had a very strong quarter, up 6.9%. The MSCI Emerging Markets index fared well too, up 2.9%. Not to be outdone, the Bloomberg U.S. Aggregate bond index was up 2.8%. Domestic stocks were less fortunate with the S&P 500 down 4.3% and small company stocks as measured by the Russell 2000 down 9.5%. At one point during the quarter the performance gap between the S&P 500 and the MSCI EAFE reached a whopping 15.6%. The merits of diversification could not be more evident.
The second quarter thus far has been much more volatile. Stocks dropped sharply for two consecutive days in response to President Trump’s tariff plans to alleviate trade imbalances with other countries. The drop in stocks was the sharpest we’ve seen since March of 2020 when the government shut down the economy in response to the Covid outbreak. Not unlike March of 2020, we witnessed not only some terrible days in stock market history but one of the best as well. On Wednesday, April 9th, stocks roared back an astounding 9.5% as measured by the S&P 500. According to S&P Dow Jones Indices, it was tied for the eighth best day in history for this index. This was a great reminder of the risk investors subject themselves to if they sell when stocks are being hammered.
Waterfall declines such as we witnessed are frequently followed by a bounce in stocks (as we have already seen) and a retest of the recent lows. Sometimes you get an undercut low in which stocks break a little below the recent low before regaining their footing. The big question is whether this recent low and any subsequent retest is the low for this cycle or the beginning of a larger move down. With investor sentiment being terrible and at levels that historically have coincided with major market bottoms, I’m inclined to believe that the bulk of the damage is done. Much of the weakness has been in large-cap domestic growth stocks which should not be too surprising given their rich valuations and thus low margin for error. Domestic mid-cap and small-cap stocks have also experienced larger setbacks due to their economic sensitivity. I believe the relative outperformance we have witnessed in foreign stocks is likely to continue given their more attractive valuations, the improving economic outlook in Europe, and the recent weakening of the U.S. Dollar.
The Treasury market garnered attention last week when bonds weakened while stocks were still going down. More typically, bonds rally in a flight to safety when fears are running high and investors are selling stocks. While this was the initial reaction to the drop in stocks, Treasuries surprisingly changed direction and fell, resulting in a 0.50% spike in the yield of the 10-year bond due to the inverse relationship between bond prices and yields. The Wall Street Journal reported that this was the largest weekly gain in this yield since November 2001. The yield has since given back some of this increase, meaning bonds have recovered some. Shorter-term bonds were less impacted by this recent volatility.
I mentioned in my recent blog that the best course of action during sudden drops is usually no action. The sharp rally we witnessed right after that was a prime example of why this is true. A resumption of volatility can present a number of opportunities for action, such as: exiting any underperforming positions considered for replacement while capital gains are reduced in taxable accounts; converting pre-tax IRA assets into Roth IRAs at depressed valuations; harvesting losses to offset future realized gains in taxable accounts subject to high capital gains tax rates; and rebalance accounts to trim positions that have held up well and add to positions that are beaten down providing the outlook has not deteriorated for the beaten down positions.
I welcome the opportunity to discuss any concerns or questions you may have.
Sincerely,
Glenn S. Rank, CIMA®
Certified Investment Management Analyst®
President
· GSR Capital Management, Inc. is a Registered Investment Adviser, dba GSR Capital Management. This market update is solely for informational purposes. Advisory services are only offered to clients or prospective clients where GSR Capital Management and its representatives are properly licensed or exempt from licensure. GSR Capital Management is not a tax advisor. Past performance is no guarantee of future results. Investing involves risk and possible loss of principal capital. No advice may be rendered by GSR Capital Management unless a client service agreement is in place. If you do not wish to receive marketing emails from this sender, please send an email to info@gsrcapitalmanagement.com.
· Expressions of opinions are as of this date and are subject to change without notice.
· The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
· The S&P 500 is an unmanaged capitalization-weighted index of 500 widely held stocks that’s generally considered representative of the U.S. stock market. Russell 2000 (TR) Indx – The Russell 2000 Index covers 2000 of the smallest companies in the Russell 3000 index, which ranks the 3000 largest U.S. companies by market capitalization. The Russell 2000 represents approximately 10% of the Russell 3000 total market capitalization. This index includes the effects of reinvested dividends. The MSCI EAFE index and the MSCI Emerging Markets index are unmanaged indexes compiled by Morgan Stanley Capital International that are generally considered representative of the developed international stock market and emerging international stock market, respectively. International securities involve additional risks including currency fluctuations, differing financial accounting standards, and possible political and economic volatility, and may not be suitable for all investors. Investing in emerging markets can be riskier than investing in well-established foreign markets. Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The Bloomberg US Aggregate Bond index is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the U.S. Inclusion of these indexes is for illustrative purposes only. Note that bond prices rise when yields fall, and vice versa, due to the inverse relationship between bond prices and yields. Keep in mind that individuals cannot invest directly in any index and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary.
Investments & Wealth Institute™ (The Institute) is the owner of the certification marks “CIMA,” and “Certified Investment Management Analyst.” Use of CIMA, and/or Certified Investment Management Analyst signifies that the user has successfully completed The Institute’s initial and ongoing credentialing requirements for investment management professionals