As of March 31, 2025

In the first quarter of 2025, diversification helped investors mitigate risks and seize opportunities amid market volatility. A globally diversified moderate risk 60/40 stock bond portfolio eked out a small gain of 0.3% despite negative returns in the U.S. equity markets.

Tariff concerns and weakness in technology stocks sent the S&P 500 down -4.3% in Q1'25, ending a streak of five consecutive quarterly gains. The sell-off was concentrated in a handful of large AI-focused technology companies dubbed the Magnificent Seven - Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla that struggled to maintain their previous dominance amid competition from China and tariff concerns. This marked a sharp reversal from prior years when the Mag-7 accounted for more than 50% of the S&P 500's 20%+ returns in 2023 and 2024.

Within the U.S. equity markets, there was wide dispersion. Defensive companies that pay dividends had positive returns, while fast-growing technology companies posted their worst quarter since 2020. Across size, smaller companies trailed their larger peers, given their reliance on domestic growth where policy uncertainty dominated.

As U.S. stock lost ground, international stocks surged when investors went looking for cheaper opportunities. Stocks in Europe rose 10.9% from major fiscal initiatives designed to stimulate growth and enhance the region's defense capabilities. Stocks in China gained 15% on AI enthusiasm.

Bonds gained as investors shifted their concerns from inflation to recession risk. U.S. bonds ended the quarter with a respectable 2.8% return, as yields, which are a proxy of borrowing costs, fell more than 20 basis points.

Finally, across other asset classes, gold, the ultimate safe port in an economic storm, gained 18%, its best quarter since 1986. Gold's rally was also partly driven by a weaker dollar.