First Quarter Commentary
In the first quarter of 2025, U.S. equity markets experienced broadly negative returns, mainly driven by economic uncertainty impacting investor sentiment. Large-cap equities, represented by the S&P 500, declined by -4.3% in the quarter, largely fueled by a sell-off in the "Magnificent 7" stocks which posted a loss of nearly -16% for the quarter. Small-cap equities experienced a larger pullback than their large (-4.3%) and mid-cap (-7.5%) counterparts, as seen by a drawdown of -9.5% for the Russell 2000.
International developed and emerging markets equities outperformed U.S. markets in the first quarter, likely driven by a weaker dollar and increasing international diversification with investors shifting away from U.S. markets. The MSCI EAFE index, covering developed markets excluding the U.S. and Canada, posted a positive return of approximately 6.9%, while the MSCI EM index gained approximately 2.9% during the quarter.
The U.S. Federal Reserve maintained its federal funds rate within the 4.25%–4.50% range through the first quarter with no changes made in the first two FOMC meetings of 2025. Chair Powell emphasized solid economic expansion, a stable labor market with low unemployment, and moderating inflation as signs of progress, despite inflation falling close to the 2% target. Rate cut expectations from the Federal Reserve still indicate 2 cuts in 2025, although there is disagreement amongst FOMC members given the economic uncertainty surrounding tariffs.
Yields were notably volatile during the quarter, driven largely by uncertainty over trade policy and its potential inflationary effects. Intermediate- and long-term Treasury yields ended the quarter lower, resulting in a relatively flat yield curve. Investment-grade (IG) and high-yield (HY) credit spreads widened modestly but remained well below their long-term median levels.
To view the first quarter reports, click on the links below: