The first quarter of 2025 presented investors with challenges as markets responded to new economic policies and shifting dynamics across asset classes. While the quarter began with relative stability, March brought heightened volatility and broad market declines as investors began processing the implications of the new administration’s trade policies.
During these turbulent times, we recognize the emotional impact market fluctuations can have. As your trusted advisors, we believe in separating political sentiments from financial decisions while maintaining historical perspective on market cycles. In this article we’ll review our market analysis, share how we’re keeping perspective, and our guidance to investors during these turbulent times.
First Quarter Market Review
The first quarter of 2025 delivered mixed results across global financial markets. As illustrated in Exhibit 1, Global Equities, as measured by the MSCI ACWI IMI Index, declined 1.61% for the quarter. Within this broader context, we observed notable performance divergence across regions and asset classes:
- International equities emerged as the quarter’s standout performer, posting a solid 6.20% return
- U.S. equities underperformed, with large-cap equities declining 4.27% and small-cap equities falling more steeply by 9.48%
- Fixed income provided a bright spot, with U.S. bonds gaining 2.78% and global bonds returning 1.17%
Source: 12/31/2024 to 03/31/2025. Performance in USD. Dimensional Fund Advisors.
What the quarterly figures don’t fully reveal is the market shift that occurred in March. Equity markets across the board experienced declines as investors began to digest the implications of the new administration’s tariff policies. U.S. Large-Cap Equities posted a negative 5.63% return for March alone, while Global Equities declined 3.88% during the same period.
One-Year Performance Perspective
Looking at a full year ending March 31, 2025, the overall market picture appears more positive, highlighting the importance of maintaining a longer-term perspective during periods of volatility:
- Global Equities advanced 6.30%
- U.S. Large-Cap Equities led the categories shown in our analysis with an 8.25% return
- U.S. Small-Cap Equities were the primary detractor, declining 4.01%
Source: 03/31/2024 to 3/31/2025. Performance in USD. Dimensional Fund Advisors.
Value vs. Growth: A Notable Shift
The first quarter of 2025 witnessed a rotation in market leadership within the U.S., with value stocks outperforming their growth counterparts:
- U.S. Growth equities declined 10.00% for the quarter
- U.S. Value equities gained 1.64%
- This 11.64% performance gap represents one of the most dramatic quarterly divergences between these styles in recent years
This shift brings the 12-month performance of these two categories much closer to parity, with U.S. Growth equities returning 7.18% compared to 6.66% for U.S. Value equities. From a global perspective, Value has maintained its advantage, outperforming growth by 10.76% for the quarter and 3.05% for the trailing year.
Source: 03/31/2024 to 3/31/2025. Performance in USD. Dimensional Fund Advisors.
Market Reaction to Trade Policy Changes
Equity markets reached their peak around February 18th and 19th, 2025, before entering a period of significant decline and volatility. From February 18th, 2025, through early April 2025, we observed:
- Global Equity Markets (MSCI ACWI IMI) declined 15.76%
- The MSCI US Broad Market Index fell 17.98%
- Markets experienced numerous days with substantial declines and heightened volatility
This market correction coincided with the implementation and expansion of new tariff policies by the Trump administration, which have created uncertainty about global trade relationships and potential impacts on corporate earnings.
Maintaining Perspective During Market Volatility
As we navigate this period of market turbulence, we believe it’s helpful to offer some perspective and guidance:
Separate Political Feelings from Financial Decisions
We recognize that separating political views from financial decisions can be particularly challenging in the current environment, yet we encourage you to make this distinction when evaluating your investment strategy.
The connection between policy and markets is undeniable in this case—we’re witnessing how the administration’s trade policies are negatively impacting market valuations. That said, your personal feelings about the current administration, and President Trump specifically, may be either amplifying or moderating your emotional reaction to this market correction.
Those who strongly support President Trump may view these market developments with minimal concern, believing that any short-term market turbulence will ultimately yield positive economic outcomes that justify temporary disruption. If this perspective resonates with you, you may find yourself less concerned about recent volatility.
Conversely, those who fundamentally disagree with President Trump’s economic approach may feel profound distress watching market declines that appear directly linked to policy decisions. The evidence is concerning—what was recently considered one of the world’s strongest economies has experienced a rapid shift in sentiment and performance. The disconnect between well-established economic principles and current policy direction can create a troubling scenario for investors focused on fundamental analysis and historical market patterns.
For those feeling this deep concern, please know that you’re not alone in these observations. Your anxiety about the market impact of these policies is grounded in rational economic analysis. We encourage civic engagement—voting, participating in organized events, or otherwise making your voice heard through appropriate channels. However, we also strongly advise maintaining separation between these well-founded economic concerns and your long-term financial strategy, which should remain grounded in disciplined investment principles even as we navigate through this challenging policy environment.
Bear Markets in Historical Context
Stifel, Nicholas & Company put together the following chart that can also be found here.
While the current market decline hasn’t quite reached the technical definition of a bear market (a 20% drop from recent highs), we’re approaching that threshold. It’s worth remembering that bear markets are a normal part of the investment landscape:
- Since 1932, the S&P 500 has experienced 14 bear markets
- This averages to one bear market every 6-7 years
- Each bear market has eventually been followed by a recovery and new market highs
History has shown us that investors who maintained discipline through market downturns were rewarded. Emotional reactions that lead to selling during declines can result in locking in losses and missing the subsequent recoveries, which can impact long-term returns.
Abacus’s Approach During Market Volatility
During periods of market turbulence, our commitment to disciplined investment management becomes even more important. Here’s what we’re doing for our clients:
From an Investment Standpoint
- Maintaining discipline: Adhering to our long-term investment philosophy rather than reacting to short-term volatility
- Systematic rebalancing: Methodically buying into market declines and trimming positions that have held up relatively well
- Tax-loss harvesting: Identifying opportunities to realize losses that may offset gains and potentially reduce tax liabilities
Supporting You Through Uncertainty
Your Abacus advisor is available to:
- Review your financial plan and long-term strategy
- Discuss how your plan already accounts for this type of market behavior
- Provide perspective and support during challenging market environments
Managing Market Anxiety
If you’re feeling anxious about the current market environment, consider these suggestions:
- Contact your Abacus Advisor directly to review your strategy or simply talk through your concerns
- Reduce exposure to financial news if it’s increasing your anxiety
- Take time for activities that promote wellbeing, such as walking outdoors, reading, or spending time with friends
- Remember that stocks are generally better values today than they were at recent market highs
- If you do follow financial news, be selective about your sources and focus on those with reputations for thoughtful analysis rather than sensationalism
Looking Forward
While short-term market movements remain unpredictable, especially during periods of policy transition and uncertainty, maintaining discipline and focus on long-term objectives continues to be a reliable approach to investment success.
Market volatility, while uncomfortable, can help create opportunities for disciplined investors. Our systematic rebalancing approach means we’re methodically buying assets at lower prices during market declines, helping to position portfolios to benefit from potential recoveries.
Your Abacus advisor welcomes the opportunity to discuss your investment strategy and how it aligns with your financial objectives as we navigate through this period of market volatility.
