Rockbridge Institutional – March 2025 Market Review

Market Review

Here are the recent returns from various market indices:

Stocks

Note that this quarter it’s international markets that are up, it’s domestic markets, especially the larger tech stocks, that are down – not what we’ve been used to. The S&P 500 was down 4% and the Russell 2000 down 9%, International developed markets (EAFE) and Emerging Markets (MSCI Index), on the other hand, were up 4% and 3%, respectively, demonstrating the benefits of diversification.

An equally weighted portfolio of the so-called “Magnificent Seven” (Apple, Amazon, Google, Meta, Microsoft, Meta and Tesla) portfolio lost 16% of its value this quarter. Tesla lost 35%. These results explain much of the falloff in the S&P 500.

The Russell 2000 Small Cap index, because it includes a diverse group of companies across the domestic economy, is often considered a leading indicator of economic activity. The sell-off in this market is consistent with expectations of a recession in the immediate future.

Value stocks held up better this quarter. In domestic markets, the S&P 500 Value Index is about flat, the Russell 2000 Value Index is down, less than the market-wide index. The same story in international markets – the EAFE Value Index is up significantly more than the comparable growth index. However, take care not to extrapolate one quarter’s results into the future, but acknowledge it helps to solidify the importance of remaining committed to global stock markets.

References to the “stock market” in the popular press oftentimes means the narrowly defined Dow Jones Industrial Average or the S&P 500. We see this quarterly, especially that the stock market includes several markets that can behave differently from one another.

Bonds

Allocations to bond markets were a net contribution this quarter reflecting a downward shift in the Yield Curves as shown in the accompanying chart. Our index of US Treasury securities was up 1.4% at the short end (1-3-year) and 3.6% at the long end (7-10 year).

Nominal yields on Treasury securities, which do not include the risk of default, are driven by interest rates and expected inflation.  Recent declines are attributed to declining interest rates as the spread between real and inflation-adjusted yields have remained constant. Consequently, these changes in bond yields are consistent with a slowdown ahead.

Uncertainties

Markets are dealing with a myriad of uncertainties, primarily from on and off again tariffs. Further contributing to uncertainties are recession concerns, the Fed’s monetary policy and interest rates. Markets don’t like uncertainty.

The so-called VIX index measures stock market volatility.  It is calculated daily by looking at the implied standard deviation in option prices of 30 large cap stocks. This VIX index has doubled since the beginning of the year.  These numbers confirm today’s volatile stock market.

The ups and downs of tariff policy are clearly what’s driving today’s market volatility. Tariffs impact not only the global economy, but also the political landscape. A given tariff regime will be reflected in stock prices. It’s unanticipated changes in tariff regimes that translate into volatility. Consequently, expect continued market instability.