2025- First Quarter Review

It is fascinating how little can change over a long period and how much can shift in a short time. We ended the year with the market at all-time highs, along with record consumer and business confidence. Wall Street predictions for 2025 were overwhelmingly positive, forecasting continued momentum in artificial intelligence, further rate cuts, declining inflation, and a push for deregulation from the incoming administration. The optimism carried into the new year until the market hit an inflection point.

In late January, big tech leadership stumbled as doubts grew about the future of artificial intelligence, driven by the DeepSeek selloff. DeepSeek, a Chinese artificial intelligence company developed a large language model at what appears to be a fraction of the cost of the current market leader ChatGPT. The launch of DeepSeek had significant market implications sparking investor concerns about the shifting competitive landscape in AI technology, undercutting main players like Amazon, Nvidia, Google, and Microsoft.

Another factor in the market’s inflection point was President Trump’s unpredictable rollout of tariffs. This created additional uncertainty for businesses, complicating planning and hiring decisions which created broader market pressures. As a result, the S&P 500 ended the quarter down 4.6%, nearly 10% from its February peak. The Nasdaq, which is more technology-driven, saw an even steeper decline, posting a -10.4% return for the quarter and falling nearly 16% from its record high.

Consumer confidence has also been affected by tariff policy declining for the fourth consecutive month through March 2025. Future expectations have hit their lowest level in 12 years as well. Companies are demonstrating caution, slowing hiring, and tightening spending. These concerns have become evident in earnings guidance, with major airlines and large consumer-driven companies seeing stock declines after issuing disappointing forecasts.

There is a growing concern that a rise in tariffs will curb business and consumer spending triggering stagflation - high inflation coupled with low growth. This would put the Federal Reserve in a challenging position and we anticipate less rate cuts this year if inflation remains elevated.

Many, ourselves included, assumed that if the market reacted strongly to a tariff proposal, President Trump would reverse course and scale it back. Additionally, expectations for the incoming administration were that deregulation would boost productivity and tax cuts would further accelerate the market. However, those expectations have not materialized, yet.

In moments like these, we take a step back and focus on the long-term perspective. It is easy to get caught up in daily headlines, but we remain committed to evaluating the companies we own, ensuring their fundamentals remain intact. We have confidence in the companies we invest in to navigate this volatility.

We continue to believe that the U.S. is the best place to invest for several reasons. The U.S. boasts a strong and diverse economy driven by innovation and solid business fundamentals. Many of the world’s most influential and innovative companies - such as Apple, Amazon, Nvidia, and Google are based here, leading global markets and driving long-term growth. Our market is the largest and most liquid while strong financial regulations provide investors with transparency and security.

Over the long term, the U.S. market has consistently outperformed the rest of the world due to these fundamental strengths. Periods of uncertainty are never easy for investors, but history has shown that the market rebounds from downturns and continues to grow. We remain confident that the companies we invest in will continue to innovate, driving economic expansion and long-term growth.

As always, we appreciate your trust in us and look forward to warmer spring days ahead!

Sources: FactSet