Dear Clients and Friends,
The first quarter of 2025 is behind us and we wish all of you a happy start to the spring.
Technology stocks remain under pressure and the Volatility Index (VIX), or as some call the fear gauge for the stock market, remains elevated.
2024 was a remarkably stable year in the stock market, with the 20 level only being touched a few times. That was historically low on average.
So far in 2025, there have been a much higher number of trading days above this level, specifically over the last two months.
Equity Portfolio
As of this writing the year-to-date returns on the main stock indices are as follows:
S&P 500 (VOO): -4%
Nasdaq (QQQ): -10%
Dow 30 (DIA): -1%
Russell 2000 (IWM): -9%
Despite the recent volatility, only 50% of the S&P 500 and NASDAQ constituents are negative year-to-date which indicates the larger technology names that hold a larger weighting are dragging the overall market down. This makes sense when over the last 2 years they have contributed the majority of the positive performance, and in our estimation is a normal cooling off period.
The other item worth highlighting are the international and sector allocations we maintain in our current stock allocation:
International (FICS): 8%
Energy (FXN): 1%
Financials (XLF): 3%
Healthcare (FHLC): 3%
So while the broader market (primarily led by technology) is down -4%, these sectors and regions are doing well and currently make up 23% of the equity portfolio.
Bond Portfolio
The bond market has provided some relief from this volatility with higher rates of interest and price action being largely uncorrelated with stocks:
Aggregate Bond Index (AGG): 2%
Short Term Bonds (BSV): 1%
Long Term Treasury (TLT): 5%
We expect bonds to do well as interest rates decline, as the majority of our funds will enjoy price increases in combination with higher rates of interest payments.
Hang in There
Recently, we shared an update highlighting the historical patterns of market dips in the S&P 500. We’ve included that chart once more below to emphasize that the current market fluctuations, although unsettling, are comfortably within typical ranges.
So while the short term remains shrouded in mist, we know over the long term companies will adjust to changes in tax and trade policy and produce earnings that drive the markets upward over time. We look forward to reviewing the first quarter of the year with each of you and wish you all the best.