First Quarter 2025 Market Overview

The first quarter of 2025 saw more than its fair share of volatility, with the S&P 500 hitting an all-time high on February 19th, before having more negative (59%) trading days than positive (41%) to end the quarter.¹Evans, Brian, and Lisa Kailai Han. “S&P 500 Closes Higher to Start New Quarter as Traders Await Trump’s Tariff Rollout: Live Updates.” CNBC, 1 Apr. 2025, www.cnbc.com/2025/03/31/stock-market-today-live-updates.html#:~:text=The%20S%26P%20500%20reached%20an,41%25%20(12%20days)  Tariffs and the potential fallout from their implementation contributed to the volatility, but perhaps more important was a slew of weak economic data in recent weeks. A University of Michigan survey that gauge’s consumer sentiment came in at 57.0 for the month of February, well below the readings from the previous month and a year prior.²Cox, Jeff. “Consumer Sentiment Worsens as Inflation Fears Grow, University of Michigan Survey Shows.” CNBC, 28 Mar. 2025, www.cnbc.com/2025/03/28/consumer-sentiment-worsens-as-inflation-fears-grow-university-of-michigan-survey-shows.html Concerns about inflation drove the worsening sentiment. The drop in consumer sentiment, as well as sticky inflation readings³Cox, Jeff. “Core Inflation in February Hits 2.8%, Higher Than Expected; Spending Increases 0.4%.” CNBC, 28 Mar. 2025, www.cnbc.com/2025/03/28/pce-inflation-february-2025-.html and a lukewarm jobs report⁴Wallace, Alicia, et al. “The US Economy Added 151,000 Jobs Last Month and the Unemployment Rate Rose to 4.1%.” CNN, 7 Mar. 2025, www.cnn.com/business/live-news/us-jobs-report-february-2025/index.html brought back concerns about a recession in the US.

Given all the volatility in markets, one might be surprised to see that the grass is indeed greener on the other side. Every other index covered in the chart below was positive for the year, with international markets leading the way.

Source: Tamarac Reporting, Morningstar Direct and JP Morgan, as of 3/31/2025. Please see important disclosures below.

While US stocks were down for the quarter, there was a distinct difference among styles. U.S. Large Cap value stocks were actually positive for the quarter. International stocks led returns for the quarter, but once again value stocks led within the space.⁵Source: Morningstar Direct. Data as of 3/31/2025 We’ve spoken a lot about the high valuations in U.S. Large Cap markets, while pointing out that the stocks outside of the Mega Cap growth stocks were not that expensive relative to history, and in this pullback, we are seeing the more expensive stocks having stronger corrections.

Bonds have been the anchor in client portfolios in the first quarter, even as the Fed’s path to further rate cuts becomes less clear. Emerging Market bonds led the way, but high-quality taxable US bonds also had a strong quarter.

US equities had a tough quarter with the Magnificent 7 stocks down 16%.⁶Iqbal Ahmed, Saqib. “Wall Street Closes Out Bruising Quarter as Outlook Remains Murky.” Reuters, 1 Apr. 2025, www.reuters.com/markets/us/wall-street-closes-out-bruising-quarter-outlook-remains-murky-2025-03-31 International equities, on the other hand, had a strong quarter, and that combined with relative stability in bond markets buoyed well-diversified portfolios. This is exactly why we remind clients that diversification is an important tool — markets have ebbs and flows, and it is very difficult to tell when the tide will turn. While US equities may continue to see challenges in the near term (or not), other areas of the market can step in to help smooth out returns and make choppy waters easier to navigate.

Important Disclosures 

Team Hewins, LLC (“Team Hewins”) is an SEC registered investment adviser; however, such registration does not imply a certain level of skill or training, and no inference to the contrary should be made. We provide this information with the understanding that we are not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas.

The volatilities of any comparative indices included in this presentation may be materially different from the individual performance attained by a specific client in a Team Hewins strategy. In addition, client holdings may differ significantly from the securities that comprise the indices. The indices have not been selected to represent an appropriate benchmark to compare an investor’s performance, but rather are disclosed to allow for comparison to the performances of certain well-known and widely recognized indices. The indices are unmanaged, include reinvestment of dividends, capital gain distributions or other earnings and do not reflect any fees or expenses. Indices cannot be invested in directly. Set forth below are descriptions of the indices included in the presentation.

Past performance is not an indication of future returns. Comments provided herein reflects Team Hewins’ views as of the date of this write up and are provided for informational purposes only. Such views are subject to change at any point without notice. Some of the information was obtained from third party sources believed to be reliable but the information is not guaranteed. Any forward-looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. Due to various risks and uncertainties no reliance should be placed on any such statements or forecasts when making any investment decision. Nothing presented herein is or intended to be investment advice or a recommendation to buy or sell any securities and no investment decision should be made based solely on the information provided. Team Hewins is not responsible for the consequences of any decisions or actions taken as a result of information provided in this writeup and does not warrant or guarantee the accuracy or completeness of the information. There is a risk of loss from an investment in securities, including the risk of loss of principal. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor’s financial situation or risk tolerance. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses.

Source: © [2024] Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising.

Index returns for JPM GBI EM GD USD Unhedged Index (Emerging Markets Bonds) sourced from Tamarac Reporting and JP Morgan.

Index Descriptions 

• S&P 500 Index (Large Cap U.S. Stocks): measures the performance of large capitalization U.S. Stocks. It is a market-value-weighted index of 500 stocks that are traded on the NYSE, NYSE MKT, and NASDAQ. The weightings make each company’s influence on the Index performance directly proportional to that company’s market value.

• Russell 2000 Index (Small Cap U.S. Stocks): An unmanaged index that measures the performance of the small-cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index, representing approximately 10% of the total market capitalization of that index and includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. Russell Investment Group owns the Russell Index data, including all applicable trademarks and copyrights.

• MSCI EAFE Index (International Developed Stocks): The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. The MSCI EAFE Index consists of the following 22 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.

• MSCI Emerging Markets Index (Emerging Markets Stocks): is a Morgan Stanley Capital International Index that is designed to measure the performance of equity markets in 25 emerging countries around the world.

• Bloomberg Barclays US Aggregate Bond Index (Investment Grade U.S. Bonds): includes U.S. government, corporate, and mortgage-backed securities with maturities of at least one year.

• Bloomberg Barclays Muni Bond Index 1-10 Yr Blend (1-12) (Int-Term Municipal Bonds): A market value-weighted index which covers the short and intermediate components of the Barclays Capital Municipal Bond Index. The 1-10 Year Municipal Blend index tracks tax-exempt municipal General Obligation, Revenue, Insured, and Prerefunded bonds with a minimum $5 million par amount outstanding, issued as part of a transaction of at least $50 million, and with a remaining maturity from 1 up to (but not including) 12 years.

• ICE BofA Merrill Lynch U.S. High Yield, BB-B Rated, Constrained Index (High Yield U.S. Bonds): Tracks the performance of US dollar-denominated below-investment-grade (BBB rated) corporate debt publicly issued in the US domestic market. Qualifying bonds are capitalization-weighted provided the total allocation to an individual issuer does not exceed 2%. Issuers that exceed the limit are reduced to 2% and the face value of each of their bonds is adjusted on a pro-rata basis.

• JPM GBI EM GD USD Unhedged Index (Emerging Markets Bonds): A comprehensive global local emerging markets index that consists of regularly traded, liquid fixed-rate domestic currency government bonds.