2025 First Quarter Investment Report

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There’s No Place for Certainty in the World of Investing

The first quarter of 2025 was a challenging one for investors, as markets reacted to renewed trade tensions and uncertainty surrounding future economic policy. Furthermore, the path of inflation in the short run became less clear, leaving some investors to question how much flexibility the Fed has to lower overnight rates in the event a recession becomes more likely.

For the quarter, the S&P 500 was down -4.3%, the Nasdaq Composite was down -10.4%, US Small Cap was down -9.5%, while International Developed was up +8.1% and Emerging Markets were up +2.1%.

On the fixed income side, bond yields moved lower providing balance to diversified portfolios. Short term Treasury bonds gained +1.6%, intermediate Treasury bonds gained +3.8%, and long term Treasury bonds gained +4.7%.

Gold had a standout quarter returning +19.2% and continued along its strong performance from early 2024.

The key takeaway for investors from the first quarter is that the benefits of portfolio diversification are real. This had not been the case over the past couple of years, in which the Magnificent Seven tech stocks dominated financial markets to become the main drivers for many investors’ returns. Over the past quarter, the Magnificent Seven stocks dropped approximately -16%.

Volatility and uncertainty are likely to be the dominate themes over the coming months as both political and trade negotiations play out. However, if history is our guide, past periods of high economic uncertainty do not persist indefinitely and usually provide opportunities for investors with time horizons beyond one year.

Over the past few weeks, many investors have expressed concerns surrounding the Trump administrations hand in fueling the economic and political tension we are all experiencing. Rightly pointing out that the current market turbulence is mostly self-inflicted. When and how this brinkmanship ultimately unfolds throughout financial markets nobody knows, as there is little place for certainty in the world of investing.

With that said, some investors may feel compelled to wait out market volatility in cash. However, this tends to be a losing strategy. According to J.P. Morgan Asset Management, history shows during periods of stress a diversified portfolio dependably outperforms cash with the likelihood of outperformance rising with investment time horizon.

Market corrections are quite common with -5% declines occurring about three times per year and -10% or greater declines occurring every one to two years. When uncertainty is driving markets, investors should return to the basics.

Diversification is critical, as bonds along with other asset classes help smooth out equity exposure against growth shocks. Or more simply put, do not overreact to the crisis of the day. Historically speaking, staying invested through volatility has been one of the most reliable ways to build long-term wealth. Over time, investors have been rewarded for sitting tight. Rather than trying to time the ups and downs, the best strategy is often to stay disciplined, diversified and focused on long term goals. Vigilance and flexibility will be key as we navigate 2025 together.

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Enclosed are your investment reports for the last quarter.  Please feel free to contact me if you would like to discuss our investment strategy for the upcoming quarter.  Thank you for your continued trust and confidence.

Sincerely,

Justin Kobe, CFA

Founder, Portfolio Manager & Adviser

Pacificus Capital Management

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Feel free to forward this email to friends and colleagues.

Sources:

The Wall Street Journal: https://www.wsj.com/market-data?mod=nav_top_subsection

J.P. Morgan Asset Management https://am.jpmorgan.com/us/en/asset-management/liq/insights/market-insights/market-updates/on-the-minds-of-investors/the-year-in-review-what-happened-in-2024/

S&P index data: https://www.spglobal.com/spdji/en/indices/equity/sp-500/#overview

International índices: https://www.msci.com/real-time-index-data-search

Treasury market rates: http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/

__________________________________________________________________________________Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Cambridge and Pacificus Capital Management are not affiliated.

Material discussed is meant for general illustration and/or informational purposes only, and it is not to be construed as investment, tax, or legal advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. These are the opinions of Justin Kobe and not necessarily those of Cambridge Investment Research, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.

Investing in the bond market is subject to risks, including market, interest rate, issuer credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies is impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Diversification and asset allocation strategies do not assure profit or protect against loss.

Indices mentioned are unmanaged and cannot be invested into directly. The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. The Russell 2000 Index is a stock market index that measures the performance of the 2,000 smaller companies included in the Russell 3000 Index. The MSCI EAFE Index is designed to represent the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the U.S. and Canada. The Index is available for a number of regions, market segments/sizes and covers approximately 85% of the free float-adjusted market capitalization in each of the 21 countries. The MSCI Emerging Markets Index is a market capitalization weighted index comprised of over 800 companies’ representative of the market structure of the emerging countries in Europe, Latin America, Africa, Middle East, and Asia. Prior to January 1, 2002, the returns of the MSCI Emerging Markets Index were presented before application of withholding taxes.