Q1 2025 Investment Commentary
US Market Recap
Diversification Worked. Emotions Didn’t.
U.S. Stocks: A bumpy road – Tariffs, Valuations, and Tech
● Large-cap U.S. stocks (S&P 500) hit a new high in February… then slipped into a correction by early March dropping 10% from their all-time high.
● Small-caps struggled most (–9.5%), highlighting their economic sensitivity despite long-term potential. Thankfully, more value-oriented small-cap stocks outperformed their growth counterparts.
● Tech giants that powered 2024’s rally led the pullback due to trade tension and policy uncertainty, dropping 12.7%
Take
This is typical market volatility; most years have sell-offs of 10% from highs. These short-term moves test investor patience and require staying globally diversified and disciplined. This is much more important than trying to call a top or bottom or predict a specific winner or loser.
Year to date in 2025, you can see that both Developed International stocks (purple) and Emerging Market stocks (orange) have out-performed the S&P 500 significantly
International Stocks: The Global Rally Quietly Leads
Developed Markets (Europe/Japan): +7%, fueled by easing inflation and stimulus spending. We called these areas out in our 2024 market review as more fairly valued than their US counterparts – we’re glad to see our geographically neutral approach to the globe playing out well.
- Germany
- Italy
- Spain
Emerging Markets: +3%, driven by a rebound in China and growth optimism.
- China
- Brazil
International Small-Caps: Outperformed the US market YTD, up over 1%.
Take
As we mentioned in our 2024 recap, valuations outside the U.S. remain attractive. We stay neutral between U.S. and International equities to capture opportunity wherever it arises. Developed markets, in particular, have provided much more attractive dividend yields than their U.S. counterparts - increasing portfolio income.
Real Estate (REITs): Surprise Outperformer
Global REITs jumped nearly 3%, helped by steady bond yields and strong dividend appeal.
As headlines come in about apartment complexes in popular metro areas like Austin and Denver slashing rents to get tenants, we’re reminded why we prefer diversified real estate over niche, hot markets that can be fleeting – and often offered through investments with limited liquidity and tax headaches.
Take
Real assets remain an important part of a diversified portfolio, offering a buffer against inflation and growing income — especially when rates stabilize.
Bond Markets: Income Is Back
Falling Treasury yields (~4.6% → ~4.2%) powered gains in high-quality U.S. bonds. Remember, as interest rates go down, bond values go up!
Investment-grade corporate bonds posted solid, steady returns, while Munis nearly broke even as yields slightly increased.
International bonds benefited from rate cuts abroad but faced currency headwinds
Take
Bonds are no longer the portfolio drag they were in 2022. We now see 4–5% yields on core holdings and 3-4% tax-free yields on Munis — a strong ballast for long-term investors. With the Fed projecting more rate cuts later this year, the bond part of the portfolio is positioned to appreciate.
Economic Pulse: Headwinds and Concerned Consumers
Inflation continues to cool (U.S. CPI: +2.8% in the past year), giving the Fed space to pause. However, investors, businesses, and consumers fear costs can rise as tariffs come into play.
Growth remains solid (U.S. GDP +2.3%) but slowing – the Atlanta Fed is predicting a GDP decline in Q1 of over 3%.
Ultimately, consumers are cautious right now - with the March Consumer Sentiment Index dropping to its lowest point since early 2022.
Take
Markets are digesting the potential for inflation and trade uncertainty. We don’t try to predict rate moves, and instead we design portfolios to endure across economic cycles.
Geopolitics: Tariffs, Tech Wars & Global Tensions
U.S. tariffs on Chinese imports rattled markets – China is one of our largest trading partners today and a big driver of our trade deficit.
Russia-Ukraine war added volatility, but European stocks still rallied so far this year – with that continent outperforming most markets.
Big tech + AI remain geopolitical battlegrounds – what does regulation look like in a new administration, how about consolidation? New regulators are still getting confirmed but the regulatory environment is getting more lax across the board.
Take
These risks are why we diversify. We don’t build portfolios assuming peace or policy clarity, tech winners or losers, or Elon’s next tweet – we build them to endure for the long-run and evaluate them over years, not weeks.
IPO Market: The Thaw Begins
Q1 saw a modest IPO revival (~44 deals, $9.4B raised), though volatility kept many companies on the sidelines.
Big names like StubHub and Klarna are pondering an IPO, while CoreWeave debuted last month at $40/sh.
Take
After 3+ years of a nearly frozen IPO market, the long winter might finally be over. More S1's are getting filed each week. IPOs can provide liquidity for many folks with concentrated stock, and open the door to more M+A activity across public and private markets – good news for many of our clients with equity lottery tickets.
What This Means for You
Your globally diversified portfolio did its job this quarter.
International stocks and bonds helped offset U.S. volatility
Bond yields offered income and stability
Real estate added upside
Our Advice:
Don’t anchor to the S&P 500 — it’s just one piece of the global puzzle. Diversified portfolios have outperformed the S&P 500 so far this year.
Stay invested, stay diversified, and stay aligned with your financial plan. Do you feel those assumptions are changing? Talk to our team; we’ll update you.
Focus on what you can control: costs, taxes, behavior, and allocation.
Looking Ahead to Q2 & Beyond
We can’t predict market returns
— but we can help you navigate them.
Whether you’re thinking about why you own small-cap value, how DOGE cuts might impact the economy,
if BKFi can manage your 401(k) as well, or simply want to explore direct indexing, we’re here to help.
Let’s talk if you have questions about your plan or want to revisit your portfolio.
Here’s to the next quarter — with patience, perspective, and a globally balanced portfolio.