After two consecutive years of +20% gains, U.S. equities reversed course during the first quarter of 2025. The S&P 500 index fell into correction territory, falling over 10% in March, but recovered some of its losses to finish the quarter down -4.27%. Investors fretted over the implications of a potential trade war, waning consumer confidence and lofty technology sector valuations. Foreign equities (MSCI EAFE +7.01%) took advantage of the rotation out of highly priced U.S. companies by outperforming U.S. stocks during the quarter.
Fiscal and monetary policy uncertainty contributed to a rise in bond prices as the Bloomberg U.S. Aggregate index posted a +2.78% return while U.S. Treasuries (Bloomberg U.S. Treasury 7 – 10 Year index, +3.89%) also rallied as interest rates fell.
Investors came into the first quarter of 2025 riding a wave of optimism on hopes that President Trump’s pro-growth initiatives would continue to boost equities. That optimism quickly shifted as implications of a potential trade war and high technology sector valuations weighed on investor sentiment. This resulted in a shift in equity leadership. Prices of long-time leaders of technology and consumer-oriented companies plummeted, while defensive sectors like energy and health care sectors performed well as investors flocked to safety and dividend-paying stocks. The rotation resulted in large cap value stocks (Russell 1000 Value index, +2.14%) outperforming large cap growth stocks (Russell 1000 Growth index, -9.97%) by 12% during the quarter. Below are some of the strategies that make up the PSN Top Guns Large Value Universe.
Logan Capital Management, Inc.: Logan Concentrated Value (+12.0% for the quarter)
First Trust Advisors, L.P: Low Volatility Portfolio (+11.5% for the quarter)
Pullen Investment Management, LLC: Large Cap Value (+9.1% for the quarter)
Despite threats of higher tariffs from the U.S., the long-term trend of U.S. supremacy came to an end as European stocks outpaced U.S. stocks by a wide margin during the first quarter. The MSCI EAFE index posted a very strong +7.01% return during the quarter as investors rotated out of the highly priced U.S. technology and consumer-related companies in favor of cheaper value-oriented names. Financial stocks capitalized most on this rotation as the sector is relatively insulated from tariffs and expectations for widespread fiscal spending would spur economic growth in the eurozone. The MSCI Europe index posted a strong +10.64% return. The following strategies made the PSN Top Guns list for the Europe Universe.
Wellington Management Company LLP: European Contrarian Value (+15.4% for the quarter)
ARGA Investment Management, LP: ARGA European Equity Strategy (+12.0% for the quarter)
Los Angeles Capital Management: Europe Equity (+11.4% for the quarter)
Key U.S. benchmark interest rates remained unchanged during the quarter as the Federal Reserve cut its U.S. growth forecast for 2025 to 1.7% from 2.1% while lifting its inflation outlook to 2.7% from 2.5%. The shift in the Fed’s forecast, policy uncertainty and the fall in consumer sentiment stoked recession fears in the U.S. The shift in sentiment and weaker economic data resulted in U.S. Treasuries outperforming as the 10-year Treasury yield fell 37 bps to 4.21% during the quarter. Meanwhile, quality prevailed within U.S. credit markets as investment grade bonds (Bloomberg U.S. Corporate Investment Grade index, +2.31%) outperformed the lower quality high yield bonds (ICE BofA U.S. High Yield Index, +0.94%). Below are some of the strategies that make up the PSN Top Guns Core Plus Universe.
Western Asset Management Company: US Long Duration Plus (+3.8% for the quarter)
J.P. Morgan Asset Management: JPM Long Duration (+3.7% for the quarter)
Victory Capital Management Inc.: Pioneer Multi Sector Fixed Income (+3.6% for the quarter)
To learn more about PSN Top Guns and see the entire list of winners.