04/21/2025 Market Strategy
Where’s the Rabbit?
While Uncertainty Dogs Sentiment, We Remind our Readers that Patience is a Virtue
Key Takeaways
- The S&P 500 shed 1.5% last week as investors further rotated and rebalanced portfolios toward defensive sectors.
- With just 59 or nearly 12% of the firms in the S&P 500 index having reported, there are some positive surprises worth noting.
- Last week’s retail sales data showed a strong gain largely in line with expectations. The retail sales data point to personal consumption growth of around 1% annualized in the first quarter, a marked slowing from Q4.
- Investors this week will be focused on Q1 earnings as 127 firms are due to report results this week, with another 183 scheduled to report the week after.
- This week’s economic data should shed further light on manufacturing, services, unemployment, and the housing market. The Fed’s Beige Book scheduled for release on Wednesday will provide broad detail on the economy from a regional and anecdotal perspective.
With no rabbit having yet been drawn from the proverbial hat from among a broad base of trade negotiations in likely diverse states of progress asset class benchmarks are likely to remain hostage to interim periods of volatility in the near term, reflecting uncertainty as to the direction markets will ultimately take in 2025.
As of last Friday, the S&P 500 stood at a level 10.2% below where it started this year and 14% off its record high reached on February 19 of this year.
The S&P 500 shed 1.5% last week as investors further rotated and rebalanced portfolios toward defensive sectors. Information technology, consumer discretionary and communication services sector stocks underperformed the broader index in a week that favored sectors reflecting “risk off” positioning or sectors that underperformed last year.
Notwithstanding some powerful interim rallies experienced stateside thus far this year in equities uncertainty appears to remain “the flavor” of the day to day, and week to week for now.
The VIX index of expected volatility priced into the equity futures market that closed on April 8 at 52.33 (its highest closing level since its spike to 82.69 on March 16, 2020, as the COVID 19 crisis unfolded) moved lower as the Trump administration paused some of its tariffs, which brought a relief rally that saw the VIX slide to 29.65 at the close on April 17.
Value stocks have outperformed growth stocks across all the Russell market capitalization segments in the current down market. Among large cap stocks, value has led growth since mid-January.
Among the S&P 500’s 11 sectors information technology and consumer discretionary sectors that ranked among the leading sectors last year and the year prior to last year remain near bear market territory since the start of this year as markets reflect uncertainties tied to trade policy.
Bond prices have been in flux rallying last week and sending the yield 17 basis points lower to 4.32% by last Friday. This follows moves up and down in yields by 50 and 25 basis points over the past two weeks. Investor concern about the Trump Administration’s tariff policy has led to volatility and repricing of some US assets by both US and international investors.
Gold closed at a new record high on Wednesday, April 16, at $3,343 before easing to $3326.85 on Thursday’s close before the Good Friday market holiday. As of Thursday’s close, gold has risen 26.8% from the start of the year.
In our view, gold prices continue to benefit largely from purchases of the precious metal by central banks in emerging markets (including Russia, China, India, and Saudi Arabia) seeking to shore up their currencies against a US dollar that has shown considerable strength over the last 17 years (since the Great financial crisis) notwithstanding recent weakness tied to economic growth concerns related to changes in trade policy.
Gold has also benefited from “safe haven” flows as investors of various stripes have repriced major asset classes in the face of uncertainty in world financial markets tied to domestic and geopolitical trends.
Good News in S&P 500 Earnings Season
Prior to the start of the quarter, Bloomberg’s bottom-up estimates put analysts’ expected earnings growth at 6.8% from a year earlier. As of last Friday, Q1 earnings growth for the benchmark is 6.8% on the back of 6.2% revenue growth.
Though it’s way too early to draw conclusions about first quarter results with just 59 or nearly 12% of the firms in the S&P 500 index having reported there have been some positive surprises worth noting.
The five firms (out of 64 total) in the information technology sector that have reported thus far have seen earnings grow 19% from a year earlier on revenue growth of 9.5%.
The two (of 25) firms in communication services (a sector heavily weighted in tech represented by search engines, social media and streamers) saw earnings rise 21% on revenue growth of 9.5%.
Earnings at financial firms (25 of 77 have reported) were up 8.5% on revenue growth of 7.1%. Several banks saw solid gains in trading revenues as a result of the recent volatility the markets.
This week will shed more light as to how the largest 500 companies in the US navigated the first quarter. Another 127 S&P 500 companies report this week, including financial firms as well as major names in technology and consumer discretionary. A further 183 firms report the week of April 28.
This week’s economic data should shed further light on manufacturing, services, unemployment, and the housing market. The Fed’s Beige Book scheduled for release on Wednesday will provide broad detail on the economy from a regional anecdotal perspective.
We remain positive on equities with current conditions suggesting we are right about where we should be considering the changes in stateside trade policy that are underway, and the degree of uncertainty change brings. That said, key to a positive outcome will be the quality of negotiations that are underway between the administration and international trading partners and the ability to remain flexible and make necessary tweaks along the way to reaching a positive outcome.
Historical context applied to the markets suggests to us that while risk near term remains elevated—opportunity midterm and longer term suggest portfolio diversification, quality assets and right sized expectations with more than a dollop of patience and perseverance point toward the potential of a likely reengagement of the bull market sometime in the not too distant future.
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