Welcome to the RPAG Quarterly Market Review for Q1 2025, where we discuss U.S. equity markets, international equities, the broad U.S. fixed income market, market valuations, and much more.
Presenter:Global equity markets were mixed over the quarter, with international equities posting positive returns while U.S. equities were negative. Fixed income markets were positive over the quarter as rates declined across much of the yield curve. U.S. equities declined 4.7% (Russell 3000), with Energy as the best-performing sector and Consumer Discretionary and Information Technology as the worst-performing sectors. In a reversal from 2024, large-cap value outperformed large-cap growth by over 1,200 basis points (2.1% for Russell 1000 Value vs. -10.0% for Russell 1000 Growth). International equities and emerging markets equities performed well over the quarter, returning 7.0% (MSCI EAFE) and 2.9% (MSCI Emerging Markets), respectively. The broad U.S. fixed income market returned 2.8% (Bloomberg Barclays Aggregate) over the quarter. While the Fed held the federal funds rate steady during the quarter, longer-term rates fell, with the 10-year Treasury declining by over 30 basis points. The unemployment rate increased slightly to 4.2% this quarter, from 4.1% at the previous quarter-end.
Quarterly and year-to-date returns of the following indices: U.S. Equity (Russell 3000 Index), Fixed Income (Bloomberg Barclays U.S. Aggregate Bond Index) and International Equity (MSCI ACWI ex U.S. Index).
Over the last year, growth stocks outperformed value stocks by 0.60%. For the trailing quarter, value stocks outperformed growth stocks by 12.10%.
The graph above is plotted using a rolling one-year time period. Growth stock performance is represented by the Russell 1000 Growth Index. Value stock performance is represented by the Russell 1000 Value Index.
The first quarter of 2025 saw a decline of almost 5% for the U.S. equity market, as the threat of widespread tariffs began to dampen the growth outlook and create more uncertainty. This negative performance follows two consecutive calendar years of more than 20% gains. The quarter provided a good reminder that the U.S. equity market is not immune to drawdowns —and that they should be expected periodically. The chart below shows that a drawdown of 5% should be expected about twice a year, and a drawdown of 10% should be expected about once every 18 months. This underscores the importance of maintaining portfolio diversification, especially after periods of strong performance in a single market or asset class.
Source: Capital Group, RIMES, Standard & Poor’s. As of December 31, 2024. Average frequency assumes 50% recovery of lost value. Average length measures market high to market low.
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