Summary and Implications - Q1 2025
The U.S. economy is showing signs of softening if not outright contraction, but the risk of an enduring recession remains at low probability levels. Safe-haven and defensive assets such as U.S. Treasuries and precious metals are benefiting from the uncertainty stemming from tariff headlines.
Despite near-term uncertainty, strong labor markets and AI-driven productivity gains will likely continue supporting long-term corporate earnings growth. A weaker dollar could benefit multinationals.
Long-term investors should remain neutral on equity positioning with a preference for high quality U.S. stocks with strong balance sheets and reasonable valuations. AI-driven large caps can recover from the 1st quarter sell-off as expectations remain high for growth and spending, while small and mid-caps will likely lag unless they see a turnaround in earnings prospects. Hard assets like real estate and natural resources can still provide inflation protection in the face of higher tariffs.
Fixed income remains attractive from a real yield standpoint but also as a diversifier for pro-cyclical assets such as equities and commodities. Investors still have an opportunity to lock in moderately high real rates by extending the maturity profile of their fixed income allocation.
Investment Summary and Outlook
Global stocks ended the first quarter with moderately negative returns, as U.S. equity losses were not enough to offset positive U.S.-dollar based returns across international markets, led by European and Chinese stocks. Throughout the quarter, equity investors were whipsawed with trade tariff headlines as the Trump Administration implemented initial tariffs on aluminum/steel and auto imports, threatening to broaden the scope of tariffs (reciprocal, sector-based) to be announced on April 2, so-called “Liberation Day.” Safe-haven and defensive assets such as U.S. Treasuries and precious metals are benefiting from the uncertainty weighing on economic growth and sentiment, as President Trump threatened to implement tariffs across “all countries” announced on social media during the final weekend of the quarter. Investor macroeconomic anxiety reached levels not seen since the peak of COVID per the BofA Fund Manager Survey.
Click here to read the full Q1 2025 Quarterly Commentary
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