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Market Commentary

Monthly Financial Markets Commentary — April 1, 2025

Stocks fell broadly in the month of March, extending the downward trend in February. There was a decided "risk off" move, with the "Mag 7" sustaining the bulk of the damage and a rotation into the perceived safety of utilities and consumer staples . The Federal Reserve Bank threw cold water on the equity party as it signaled it would not be cutting rates as much as earlier forecast, given concerns about stubborn inflation.

Breadth in the market has improved somewhat from earlier months as the more broad-based and cyclical Dow Jones Industrial Average and S&P 500 Index advanced relative to the more narrow, tech-based Nasdaq Composite Index. Narrow market leadership is not a healthy sign for the equity markets, as it historically portends declines in the markets.

By historical measures, such as price-earnings, price-to-sales, market-cap-to-GDP, Schiller CAPE Ratio, stocks are still significantly overvalued notwithstanding recent declines in the market. This is not surprising given that every dip in the market since 2010 has proven to be a buying opportunity and an entire generation of investors and investment advisors believe the stock market only goes up. It is no coincidence that during this same period the Federal Reserve engaged in massive money printing, cemently the belief in the "Fed Put".

For 2025 the S&P 500 Index, the capitalization-weighted broadest measure of U.S. stock market performance, has returned -4.21%. The Nasdaq Composite Index, another capitalization-weighted index, but more reflective of growth stocks, has returned -10.29%. Finally, the Dow Jones Industrial Average, a price-weighted index, has returned -.78%. All returns are on a total return basis in that includes dividends.

The Morningstar U.S. Aggregate Bond Index, a broad measure of the U.S. bond market, has returned 2.38% for the year. While longer term rates rose in the latter part of 2024 and into the first weeks of 2025, there has been a notable downward shift in rates in the last few weeks. It is difficult to say what this signals. It could simply reflect a flight to safety in the wake of President Trump's erratic pronouncements regarding tariffs. Credit spreads remain at very low levels, meaning that investors are not demanding much of a premium over so-called risk-free 10-year treasuries.

The sectors in the equity market that have performed the best in 2025 are Energy, Healthcare and Utilities at 7.8%, 5.1% and 4.5%, respectively. Communication Services, Consumer Discretionary and Information Technology have fared the worst at -6.4%, -13.9% and -12.9%, respectively. Sector performance is almost the exact opposite of 2024, indicating a broadening of the market and a move away from the Mag 7.

The comparison of current price/earnings ratios and dividend yields as of March 31, 2025 to those of the prior year is as follows.

* based on 12-month trailing data

It is to be noted that much of the advance in the equity markets in 2024 was due to multiple expansion rather than fundamentals - this continues into the early part of the current year. The dividend yield, which is at historic lows, is a reliable metric of valuation, since it cannot be manipulated as earnings frequently are. There is general agreement that Wall Street analysts are overestimating 2025 corporate profits and will be taking those estimates down during the year.

Gold and crude oil most recently traded at $3,175.50 and $72.50, respectively, compared to $2,275.00 and $84.85 one year earlier. Gold has risen in reaction to global political instability, increased holdings by all central banks and general concerns about the value of the dollar and creditworthiness of the United States. Year to date Gold has significantly outperformed the S&P 500 index.