Q1 2025 Economic & Market Review [Webinar Summary]

Presenters:  Lowell Pratt, CFA, Andy Pratt, CFA, CAIA, and Bijal Patel CFA, CFP®, MT, RICP®

Here is the webinar recording from April 16, 2025. You can browse the topics discussed and main takeaways using the sections and time stamps below:

Click the time-stamp in each section title, and you will jump right to that part of the video on a new screen!

• 00:00 - Introduction and Reciprocal Tariffs
• 05:55 - Q1 Market Performance Overview
• 10:04 - Long-Term Market Summary
• 12:16 - Market Volatility Index (VIX)
• 13:17 - The Impact of Fear: S&P 500 Forward Returns
• 14:01 - Market Returns: Historical Context
• 16:23 - Client Opportunities
• 19:19 - The Good News: Large Caps
• 23:17 - Recent Size and Style Shifts
• 26:06- Did the Stock Selection Model Help?
• 29:23 - Opportunity: Recovery Model?
• 31:36 - Deep Dive Q&A

Introduction and Reciprocal Tariffs (00:00)

• The market experienced significant volatility following the April 2nd announcement of reciprocal tariffs that were higher than generally expected (Watch our Tariff Webinar Here)
• A 90-day pause was announced on April 9th, with only base 10% tariffs continuing as countries negotiate individually
• The quick backtrack was driven by a surprising rise in treasury rates and further weakening of the dollar
• Since Trump's inauguration, the dollar has steadily weakened, now lower than it was on election day
• The weakening dollar has a silver lining for multinational companies, as international earnings will be boosted when translated back to USD

Q1 Market Performance Overview (05:55)

• In Q1 2025, US stock market was the laggard among asset classes, down 4.7%
• International developed markets and emerging markets outperformed the US, highlighting the importance of diversification
• The bond market was off to a surprisingly strong start with price appreciation as bond yields began to come down
• The strong quarterly performance across most asset classes was disrupted by the April 2nd "Liberation Day" tariff announcements

Long-Term Market Summary (10:04)

• Looking at historical data, the markets tend to recover nicely even after periods of panic
• US stock market has shown solid double-digit returns over 10, 15, and 20-year periods
• During these same timeframes, US markets outpaced international markets by almost 2-to-1
• International investing is very quietly closing the gap in recent 1 and 5-year periods
• Portfolios built today should look different than those from 10-20 years ago, with more diversification

Market Volatility Index (VIX) (12:16)

• Prior to the tariff announcement, the VIX index was sitting around 20, indicating a calm market
• Over a four-day window, the VIX spiked from 20 to 50 - the third biggest increase in that timeframe ever recorded
• For April 2025, the VIX has traded above 30 for all but two days, indicating continued heightened volatility
• Historically, when the VIX index is at levels above 30, it produces the best forward-looking returns

The Impact of Fear: S&P 500 Forward Returns (13:17)

• The 25 best days in the stock market tend to cluster around the 25 worst days
• Seven of the best market days have occurred over a two-week window in the last 10 years
• Missing the 10 best days in the market significantly impacts long-term returns (10.4% vs. 6.1%)
• The S&P 500 experienced a 9.5% gain in a single afternoon following the tariff pause announcement

Market Returns: Historical Context (14:01)

• The four-day period ending April 8th saw markets down 12.1%
• This marks only the 12th time in history that markets have fallen that fast
• Other comparable periods occurred during the 1987 crash, the financial crisis, and COVID
• Markets have historically recovered well from periods of extreme volatility

Client Opportunities (16:23)

• Many clients are taking advantage of the market volatility to deploy cash that was previously in money market accounts
• Tax-loss harvesting opportunities have emerged from the market volatility
• Burney plans to launch a second ETF in Q4 2025
• The new ETF will allow clients to convert taxable stock assets into the ETF on a tax-free basis using a 351 exchange
• A 130/30 strategy is available that can create capital losses to offset other income while maintaining market exposure

The Good News: Large Caps (19:19)

• Large growth was the only segment of the market that made money on a rolling 12-month basis
• Recently, large value stocks have begun to hold up better than the rest of the market
• This shift may be related to tariff concerns, as domestic dividend-paying stocks may be less impacted by tariff uncertainties
• The team has shifted portfolio targets toward large caps, with current targets at 80% large cap

Recent Size and Style Shifts (23:17)

• Small and mid-caps continue to struggle despite occasional short rallies
• The market remains firmly in a pro-large-cap phase
• There has been a shift from growth to value, with pro-value momentum picking up since November
• In response, the team moved growth targets from 70% to 60% in November and is now at a 50/50 growth/value allocation
• Style cycles typically last 18-30 months, and the current pro-growth cycle has lasted about 20 months

Did the Stock Selection Model Help? (26:06)

• Burney's stock selection model can be protective during market downturns
• Through March, stocks rated as "buyable" by the model showed about a 12% performance advantage over those rated "as sells"
• The team combines stock selection ratings with an AI-powered revenue surprise signal
• Stock selection was a positive contributor to portfolio performance despite the broader market decline in March

Opportunity: Recovery Model? (29:23)

• The team is evaluating whether to activate their "recovery model" if market conditions warrant
• This model looks at past recoveries to find high-quality companies that were oversold during market drawdowns
• Recovery phases after bear markets tend to be V-shaped and somewhat predictable
• The investment committee is monitoring whether the current downturn is severe or long enough to activate this strategy

Deep Dive Q&A (31:36)

• Questions addressed in the Q&A session included:

  • Why did you not see this coming?
  • What's the next step to manage stocks at risk from tariffs?
  • How should we think about taking advantage of European markets?
  • How defensive should we get given the uncertainty?
  • When should I begin to worry?
  • Is there anything we should be doing to protect our investments?
  • What are some tax strategies to take advantage of in the next few years?
  • I'm 68, and my retirement accounts have lost significant money. What should I do?
  • I'm six years away from retiring. What's the best reaction to this volatility?
  • Are US corporate bonds still a good investment?
  • How has the outlook on interest rates changed?
  • Are investors from around the world losing confidence in the US?

If you have questions like these or wish to discuss your financial planning needs, Schedule a Meeting with us.         

CNBC’s annual FA 100 ranking was published on 10/2/2024 for the year 2024.  The Burney Company did not pay CNBC any compensation for being considered for the list, however, Burney Company does pay a licensing fee to use the CNBC logo in marketing materials.  A link to the CNBC selection criteria can be found by going to https://cnb.cx/3Pg6FVh. The CNBC award was given to the Burney Company, which includes portfolio managers associated with Burney Wealth Management and nine other affiliated portfolio managers.