Market & Economic Commentary: Q1 2025
The First Quarter Seems Far in the Past as the Tariff War Kicks In
Global markets navigated significant policy shifts in the first quarter of 2025 but mostly remained optimistic. The U.S. economy began the year with many economists predicting economic growth of around 2%, encouraged by a newly permissive regulatory and tax environment. Still, investors turned apprehensive as policies grew increasingly disruptive. Internationally, the markets appeared poised for growth as the EU loosened spending and Emerging Asia benefited from strong domestic demand and investment.
However, since the quarter’s end, the introduction of historically high tariffs and the threat of an international trade war have jolted markets and amplified uncertainty. The fear of recession and possible stagflation has dominated markets. An escalating trade war could boost inflation while curbing economic growth. Already, several countries are preparing—or have launched—retaliatory tariffs. It is impossible to know how the trade disputes and the economic fallout will unfold over the coming months, and the lack of a consistent message compounds the concerns.
Crucially, it is in times of uncertainty that remaining disciplined matters most. We understand that the urge to sell falling stock positions may feel compelling, and staying the course may be stressful and challenging. However, we believe there is no better path, especially in uncertain times. Indeed, making investment decisions based on emotions often leads to underperformance over time.
Franklin Templeton, an investment firm, has pointed out that from January 1, 2005, through December 31, 2024, there were 5,033 trading days1. However, if an investor had pulled out of the market in times of volatility and missed only 10 of those days, their portfolio’s final return would have been reduced by 63%.
Source: Franklin Templeton. All investments involve risks, including loss of principal. The chart provided is for illustrative purposes only and represents an unmanaged index in which investors cannot directly invest
There Is Never a Strong Signal to Return to the Market. Few investors who sell manage to avoid missing the ten best recovery days, leading to an even greater long-term risk of underperformance.
Diversification for the Long Term
We remind clients that since 1937, the stock market (represented by the S&P 500) has experienced down years almost 25% of the time: there were 67 years of gains, but 21 years when the markets finished lower than where they started. With this in mind, we seek to navigate this range of outcomes by building diversified portfolios for our clients that factor in various market and economic conditions. While we can’t protect against exogenous shocks and occasional portfolio losses, we strive to use a long-term, balanced, and consistent approach to investing that may help mitigate the impact of short-term market fluctuations.
A Brief Review of Q1
The Federal Reserve maintained interest rates between 4.25% and 4.5% during the first quarter, holding off on rate cuts as it continued to monitor economic data. Investors anticipated potential rate cuts in 2025, but tariffs, inflation, and other macroeconomic factors have complicated this outlook.
Concern about U.S. domestic policy and threats of a new tariff regime drove the U.S. stock markets down through the end of March, while international markets benefited from an expectation of increased domestic spending.
The 1.32% decline in global markets was driven by the U.S. market, as represented by the S&P 500, which was down 4.51%. Meanwhile, International Developed markets experienced a gain of 6.20% in Q1, and Emerging Markets rose 2.93%.
U.S. Treasuries had a strong quarter as investors gravitated toward safer assets. However, municipal bonds experienced outflows amid concerns about the potential change to their tax-exempt status, as Congress may consider eliminating this benefit to fund extensions of previous tax cuts.
As always, we closely track market movements and economic conditions and look for compelling opportunities to make tactical portfolio adjustments. Importantly, we remain committed to our disciplined and diversified investing approach and recommend extreme caution in making any changes to portfolios based on current events.
We deeply value the trust you place in our team and remain dedicated to helping you navigate through every market cycle with clarity and care.
Index Disclosure and Definitions
All indexes have certain limitations. Investors cannot invest directly in an index. Indexes have no fees. Historical performance results for investment indexes generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the incurrence of which would have the effect of decreasing historical performance. Actual performance for client accounts may differ materially from the index portfolios.
S&P 500 Index represents the 500 leading U.S. companies, approximately 80% of the total U.S. market capitalization. Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. The Nasdaq Composite Index (NASDAQ) measures all NASDAQ domestic and international-based common-type stocks listed on The Nasdaq Stock Market and includes over 2,500 companies. MSCI World Ex USA GR USD Index captures large and mid-cap representation across 22 of 23 developed markets countries, excluding the U.S. The index covers approximately 85% of the free float-adjusted market capitalization in each country. MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets (as defined by MSCI). The index consists of the 25 emerging market country indexes. Bloomberg U.S. Aggregate Bond Index measures the performance of the U.S. investment grade bond market. The index invests in a wide spectrum of public, investment-grade, taxable, fixed-income securities in the United States—including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than 1 year. Bloomberg Global Aggregate (USD Hedged) Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate, and securitized fixed-rate bonds from both developed and emerging market issuers. Index is USD hedged.
The Kaminsky-Silverman Group utilizes Symmetry Partners, LLC (SP), which is a third-party service provider that supplies market data and assists in creation and monitoring of factor-based investment models. SP is also an investment advisory firm registered with the Securities and Exchange Commission. All data is from sources believed to be reliable but cannot be guaranteed or warranted. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, product, or any non-investment-related content made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may not be reflective of current opinions or positions.
Please note the material is provided for educational and background use only. Moreover, you should not assume that any discussion or information contained in this material serves as the receipt of, or as a substitute for, personalized investment advice.
Diversification seeks to improve performance by spreading your investment dollars into various asset classes to add balance to your portfolio. Using this methodology, however, does not guarantee a profit or protection from loss in a declining market. Past performance does not guarantee future results.
This material is confidential and is provided for informational purposes only and is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer, or solicitation to buy or sell any securities or to adopt any investment strategy. Investment return and principal value of an investment will fluctuate; therefore, you may have a gain or loss when you sell your investment. Any opinions, expectations, and projections within this document are solely those of the Portfolio Manager(s) identified and do not necessarily represent the viewpoint of Shufro, Rose & Co., LLC or other Portfolio Managers at the firm. This report was prepared by Shufro, Rose & Co., LLC and is presumed to be correct. Shufro, Rose & Co., LLC is an investment adviser registered with the Securities and Exchange Commission. ADV Part 2A is available upon request or at https://adviserinfo.sec.gov/. Please contact Shufro, Rose & Co., LLC at (212) 754-5100 with any questions.
