Investment Strategy Brief
Q1 2025 Market Review
April 1, 2025
Executive Summary
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Market leadership has shifted materially in 2025 with foreign stocks, bonds and diversified investment approaches outperforming.
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Tariff uncertainty has fueled market volatility in Q1 and may continue to do so until there is greater clarity on trade policy.
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While growth expectations have been lowered for the first half of this year, a recession is not the base case.
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Higher-than-normal volatility may persist over the next few weeks with several key dates on the horizon.
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Investors should maintain neutral positioning while actively looking to rebalance and diversify portfolios.
Markets experienced a Magnificent 7 driven downturn in Q1, though foreign equities and bonds held up well
.png?width=2000&height=968&name=IS%20Brief%202025-03-31%20Chart%201%20(1).png "IS Brief 2025-03-31 Chart 1 (1)")
Shown in the left panel is the prior one-year history of the S&P 500 which is a market capitalization weighted index of U.S. large cap stocks. Shown in the right panel are 2025 year-to-date total returns for U.S. Large Cap (S&P 500), International Equities (MSCI All Country World ex-U.S.), Magnificent 7 (Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia, Tesla), U.S. Large Cap ex Magnificent 7 (S&P 500 ex-Mag 7) and 10yr U.S. Treasuries (Bloomberg U.S. Treasury Bellwethers 10Y Index). References to individual securities should not be construed as a recommendation to buy, hold or sell. Past performance may not be indicative of future results. One cannot invest directly in an index.
- The S&P 500 entered a correction, declining 10% from its all-time high, though drawdowns of this magnitude are common, occurring in 57% of calendar years since 1927.
- In comparison, international equities, bonds and investment processes that avoided market concentration have performed relatively well this year.
Market leadership has shifted materially in 2025
.png?width=2000&height=1003&name=IS%20Brief%202025-03-31%20Chart%202%20(2).png "IS Brief 2025-03-31 Chart 2 (2)")
Shown are calendar year 2024 and year to date 2025 total returns for various asset classes represented by the following indices: U.S. Large Cap (S&P 500), U.S. Small Cap (Russell 2000), Int’l Developed (MSCI EAFE), Int’l Emerging (MSCI EM), Real Estate (FTSE EPRA/NAREIT Developed), Core Bonds (Bloomberg U.S. Aggregate), Municipal Bonds (Bloomberg Municipal), High Yield (Corp) (Bloomberg U.S. High Yield Ba to B), High Yield (Muni) (Bloomberg Municipal High Yield), Cash (FTSE 3-Month Treasury Bills). Past performance may not be indicative of future results. One cannot invest directly in an index.
- There has been a rotation in market leadership this year, with many of last year’s biggest winners among those facing the most difficulty in 2025.
- The underperformance of U.S. large cap equities has been led by growth stocks – they entered the year with 94th percentile valuations but have since corrected notably to the 75th percentile.
Trade policy uncertainty has fueled market volatility and created potential headwinds for economic growth
.png?width=2000&height=894&name=IS%20Brief%202025-03-31%20Chart%203%20(1).png "IS Brief 2025-03-31 Chart 3 (1)")
Estimated tariffs reflect the tariff rate applied fully to all associated imports and are shown as a percent of gross domestic product (GDP). 25% Canada Tariffs includes a carveout for energy products, for which 10% tariffs apply. 25%+ Product-Specific refers to tariffs on steel, aluminum, copper, lumber, automobiles, pharmaceuticals ,semiconductors and European alcohol. De Minimis refers to the exemption from tariffs for imports with a value less than $800. Full Tariff Parity refers to an approach that equalizes tariffs between individual trade partners on a case-by-case basis. Non-Tariff Parity refers to tariffs meant to offset the impact of non-tariff barriers to trade such as Value-Added Taxes (VATs). The maximum direct economic impact of proposed tariffs assumes full demand destruction via a tariff-induced price shock and that tariffs are implemented fully and in isolation, with no changes to the sourcing of the imports, no other offsetting policies and no retaliatory tariffs. Likely impact accounts for offsetting factors such as reconfigured supply chains and substitution effects. Incremental tariff impact accounts for the effects of prior implemented tariffs to avoid double counting. The dates below each tariff represent announced implementation dates, if available. Actual results may differ materially from expectations or projections.
- So far, a 20% tariff on China, a 25% tariff on Canada and Mexico and 25% tariff on steel and aluminum have been implemented, with the tariffs on Canada/Mexico likely having the most significant impact on economic growth due to closer trade ties.
- Upcoming measures include product-specific tariffs on autos, pharmaceuticals, semiconductors and lumber, as well as reciprocal tariffs to be announced on April 2nd.
While growth expectations have been lowered for the first half of this year, a recession is not the base case
.png?width=2000&height=932&name=IS%20Brief%202025-03-31%20Chart%204%20(1).png "IS Brief 2025-03-31 Chart 4 (1)")
Shown in the left panel in gray is a range of estimates from economists for quarterly U.S. real gross domestic product (GDP) growth on a seasonally adjusted annualized basis. The blue dashes represent the average of estimates. Actual results may differ materially from expectations. Shown in the right panel is Glenmede’s Recession Model, a tool developed by Glenmede to estimate the probability of a recession in the U.S. occurring within the next 12 months. The model is a balanced mix of (1) long-term excess indicators covering manufacturing, employment and debt balances and (2) near-term leading indicators covering monetary policy, credit markets, business sentiment and other economic trends. Shaded areas represent recession periods of the U.S. economy. Though created in good faith, there can be no guarantee that these indicators will be accurate. The model was established in 2015. The data shown for prior periods represents backtested results. Actual results may differ materially from expectations.
- Many economists have lowered their forecasts for the first half of 2025 due to tariff headwinds but expect those impacts to be short-lived with better prospects in the second half of the year.
- Glenmede’s Recession Model continues to see only a modest risk of a downturn as businesses and consumers remain in relatively good shape.
Higher-than-normal volatility may persist over the next few weeks with several key dates on the horizon
.png?width=2000&height=1028&name=IS%20Brief%202025-03-31%20Chart%205%20(1).png "IS Brief 2025-03-31 Chart 5 (1)")
Shown in the left panel in solid blue is the average daily value of the Chicago Board Options Exchange Volatility Index (VIX) by month in 2025 and in hashed blue is the expected value of the VIX based on VIX futures expiring 4/15/2025. The VIX measures the implied volatility of the S&P 500 index based on options-pricing. Shown in the right panel are a handful of key dates over the next few weeks. Past performance may not be indicative of future results.
- Looking ahead to early April, volatility expectations remain relatively elevated as several key events (highlighted by tariff announcements on April 2nd) may be catalysts.
- Given this backdrop, investors should maintain neutral positioning while actively looking to rebalance and diversify portfolios.
For more in-depth information on this topic, please reach out to your Glenmede Relationship Manager.
This material is intended to review matters of possible interest to Glenmede Trust Company clients and friends and is not intended as personalized investment advice. When provided to a client, advice is based on the client’s unique circumstances and may differ substantially from any general recommendations, suggestions or other considerations included in this material. Any opinions, recommendations, expectations or projections herein are based on information available at the time of publication and may change thereafter. Information obtained from third-party sources is assumed to be reliable but may not be independently verified, and the accuracy thereof is not guaranteed. Outcomes (including performance) may differ materially from any expectations and projections noted herein due to various risks and uncertainties. Any reference to risk management or risk control does not imply that risk can be eliminated. All investments have risk. Clients are encouraged to discuss any matter discussed herein with their Glenmede representative.
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