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The Quick Facts
- Although the S&P 500 achieved three all-time closing highs in the first quarter of 2025, the index subsequently dipped briefly into correction territory, declining by 5.6% in March (-4.3% YTD).
- The tech-heavy Nasdaq 100 benchmark posted its worst quarter in nearly three years, down 8.1%.
- In contrast, equity markets outside the U.S. showed resilience, with the Europe, Australasia, and the Far East (EAFE) Index and the Emerging Markets (EM) Index achieving +7.0% and +2.9% YTD returns, respectively.
- Treasury yields dropped to fresh lows for 2025 due to growing concerns about slowing growth, with the 2-year U.S. Treasury closing February at 3.88%.
- Federal Reserve Chair Powell downplayed mounting growth concerns and the potential impact of tariffs on inflation amid President Trump’s aggressive trade policies, citing strong labor market data and resilient consumer spending as indicators that the economy remained on stable footing.
- Gold prices surged 9.3% in March (19.0% YTD), reaching record highs above $3,100 an ounce.
Investor sentiment in March was heavily influenced by anticipation of new tariffs that were announced by President Donald Trump on April 2, raising fears of a global trade war and prompting a resoundingly negative response from equity markets and shifts towards defensive assets like gold and U.S. Treasuries to start the month.
U.S. equity markets experienced a turbulent Q1 as investor concerns about tariffs, inflation, slower economic growth, and geopolitical tensions grew. Although the S&P 500 achieved three all-time closing highs in the first quarter of 2025, the index subsequently dipped briefly into correction territory, declining by -5.6% in March (-4.3% YTD). This decline is attributed to investor concerns over forthcoming tariffs and potential trade wars. In contrast, developed markets outside the U.S. showed resilience, with the MSCI EAFE Index and MSCI EM Index achieving +7.0% and +2.9% YTD returns, respectively.
March Asset Class Performance
The tech-heavy Nasdaq 100 benchmark posted its worst quarter in nearly three years, down 8.1%, highlighting fears about a potential bubble in artificial intelligence. Concerns center around overvaluation in AI-driven stocks, excessive speculation in emerging AI technologies, and the sustainability of profit margins for companies heavily invested in AI development. According to data compiled by S&P Dow Jones Indices, the “Magnificent 7” stocks were all in the red YTD (average -15.8%), and without them, the S&P 500 total return would be up +0.5% (instead of down -4.3% YTD).
Large Cap Value stocks outperformed Large Cap Growth stocks, with the Russell 1000 Growth Index down -8.4% in March (+7.8% over the last twelve months) compared to a -2.8% drop for the Russell 1000 Value Index (+7.2% over the last twelve months). However, over the past three years, the Large Cap Value Index still lags the Large Cap Growth Index by 12.3%. The Russell 2000 Index, a key measure of smaller companies, also had a weak March, with a -6.8% return (-9.5% YTD). The ESG segment, as measured by the MSCI USA ESG Select Index, fell -5.8% in March, trailing the S&P 500 by 1.0% YTD. Over the past three years, the ESG index appreciated +24.4%, lagging the S&P 500 by 5.3%. Non-U.S. equities outperformed in March, with the EAFE Index down -0.3%, while the EM Index rose +0.6%. However, over the past three years, both EM and EAFE remain well behind U.S. Large Cap equities, with underperformance of 40.1% and 8.3%, respectively. The performance of the Global Industry Classification Standard (GICS) sectors was mixed for the quarter. Energy (+9.9%) and Health Care (+6.5%) led the way, while Technology and Consumer Discretionary dropped by -11.0% and -11.8%, respectively. Energy and Utilities were the only sectors in the green in March.
At its March meeting, the Fed lowered its growth forecast and raised its inflation outlook. The Federal Open Market Committee (FOMC) maintained the federal funds rate between 4.25% and 4.5%, signaling a cautious approach amid persistent inflation pressures. Fed Chair Powell downplayed mounting growth concerns and any tariff impact on inflation that could be forthcoming. The market’s worst fears were realized after the close on April 2, as President Trump announced the “Liberation Day” tariffs, igniting an aggressive trade war. Powell revived the “transitory” term to qualify the inflationary impact of tariffs. If correct, then the Fed can prioritize economic growth when setting policy. Meanwhile, Trump has done little to ease recession fears, saying the economy faces a “period of transition” and that his tariffs will eventually mean more U.S. jobs. On top of that, the U.S. is tightening its budget deficit via DOGE at a time when both Europe and China are loosening deficit rules and delivering new fiscal initiatives that could both bolster growth. We would expect that fiscal easing will make an appearance should growth stumble later in the year.
Treasury yields dropped to fresh lows for 2025 due to growing concerns about slowing growth. The 10-year U.S. Treasury closed March at 4.21% vs. 4.57% at the end of December 2024, 3.88% at the end of December 2023, and from a peak of 4.99% in October 2023. Shorter-term 2-year U.S. Treasury closed March at 3.88% vs. 4.24% at the end of 2024. The 2-year and 10-year Treasury yield curve dis-inverted in September 2024, with the 10-year yield now 36 basis points higher than the 2-year yield. The U.S. Aggregate bond index was flat in March (+2.8% YTD). The Municipal Bond Index was down 1.7% in March (-0.2% YTD), while U.S. Corporate Investment Grade and U.S. High Yield closed March down -0.3% (+2.3% YTD) and -1.0% (+1.0% YTD), respectively. Gold prices surged +9.3% in March (+19.0% YTD), reaching record highs above $3,100 an ounce. This rally was driven by investors seeking refuge against economic and geopolitical uncertainties, particularly concerns surrounding U.S. trade policies. Oil futures, as measured by the WTI Crude Oil $/bbl., were up +2.5% in March to $71.5/bbl. The U.S. Dollar Index, which indicates the general international value of the U.S. Dollar, was down -3.2% in March and is now down -0.3% over the last 12 months.
Throughout March, the Cboe Volatility Index (VIX), which measures expected stock market volatility, remained above 20 for twelve consecutive trading days, indicating sustained market anxiety. Bond market volatility, measured by the BofA MOVE Index, traded in a tight range, with the index closing March at 101.4 vs. 98.8 at the beginning of the year and above the long-term average of 94.5. In unpredictable markets, staying the course with a well-researched, long-term strategy and financial plan is often the best approach. Adjusting risk, rebalancing portfolios, and maintaining liquidity can help navigate uncertainty.
Chart of the Month – Alternatives and Portfolio Risk/Return, 1989-2024
Since our founding in 2002, Beacon Pointe Advisors has built portfolios that include allocations to alternative investments. We believe alternatives play an integral role in a diversified portfolio, given their potential to enhance the overall portfolio risk/return characteristics when properly aligned with clients’ time horizons, risk objectives, and liquidity considerations. Alternatives tap into private markets, illiquid assets, and alternative economic drivers that may outperform during certain market conditions.
Adding alternative investments to a portfolio can improve the risk/reward tradeoff compared to a traditional equity-bond portfolio in several ways. Traditional portfolios rely on stocks and bonds, which can sometimes become correlated (e.g., during inflationary periods when both stocks and bonds decline). Alternatives, like private equity, hedge funds, private credit, and real estate, have low or negative correlations with stocks and bonds, helping to smooth returns. By adding alternatives, investors can enhance returns while keeping volatility in check, potentially leading to a better risk-adjusted performance.
For instance, a traditional 60/40 portfolio might have an expected return of 8.7% with 9.7% annualized volatility, whereas the same portfolio with a 30% allocation to alternatives might have an expected return of 9.1% with 7.9% volatility. More expected return, less expected risk.*
*Hypothetical performance results have many inherent limitations, and no representation is being made that any investor will, or is likely to achieve, performance similar to that referenced.
*Alternative investments involve specific risks that may be greater than those associated with traditional investments and may be offered only to clients who meet specific suitability requirements, including minimum net worth tests. Each alternative investment has certain requirements as to what “type” of client is legally allowed to invest in their fund, and the “type” of client is determined by the client’s asset level. You should consider the special risks with alternative investments including limited liquidity, tax considerations, incentive fee structures, potentially speculative investment strategies, and different regulatory and reporting requirements. You should only invest in alternative investments if you do not require liquid investment and can bear the risk of substantial losses.
Quote of the Month
“Alternative investments offer the potential for higher returns and diversification, but they require careful due diligence and a deep understanding of the risk involved.” – Ray Dalio, founder of Bridgewater Associates
Major Asset Class Dashboard
Curated by Julien Frazzo, Deputy Chief Investment Officer and Michael G. Dow, CAIA, CFA®, Chief Investment Officer
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or general informational purposes only. Opinions referenced are as of the publication date and may be modified due to changes in the market or economic conditions and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Past performance is not a guarantee of future results. Beacon Pointe has exercised all reasonable professional care in preparing this information. The information has been obtained from sources we believe to be reliable; however, Beacon Pointe has not independently verified or attested to the accuracy or authenticity of the information. The discussions, outlook, and viewpoints featured are not intended to be investment advice and do not consider specific investment objectives or risk tolerance you may have. All investments involve risks, including the loss of principal. Consult your financial professional for guidance specific to your circumstances. This document has been prepared with the assistance of Microsoft Copilot, an AI-powered tool designed to enhance productivity and provide support in drafting, editing, and organizing content. Microsoft Copilot leverages advanced AI models to generate text based on user input. Although Copilot generates original content based on user input, there is a risk that the generated text may inadvertently resemble existing works that may not be properly cited.
