Executive Summary
Last week, stocks declined, and bonds rallied as fresh signs of economic weakness and renewed inflation fears disturbed markets. The S&P 500’s closed down 4.4% over the quarter. In particular, Tech Mega-Caps were hit hard. Meanwhile, the yield on 10-year Treasuries fell approximately 10 basis points to ~4.25% as investors sought safety. A sharp decline in US consumer sentiment and a jump in long-term inflation expectations weighed heavily on sentiment. That followed earlier data showing sluggish consumer spending and rising prices — all ahead of this week’s anticipated US tariff expansion. If inflation remains elevated, households may start cutting back on discretionary purchases — a trend that could ripple through the broader economy and squeeze Corporate America. In response, economists have lowered their US growth forecasts, citing weaker consumer activity and reduced capital investment amid escalating trade uncertainty. All eyes now turn to the upcoming jobs report for clues on whether the economy is indeed starting to cool. Weaker payroll reports over the next few months may ultimately lead to a Fed rate cut despite the “one-time” tariff inflationary price pressures.
The analysts’ consensus growth forecast for S&P 500 companies’ Q1 earnings began the quarter at over 11% where it is exiting the quarter lower at ~6.5%. We are particularly focused on potential downward earnings revisions in the Financial Services sector as an indicator of more market capitulation. We expect a volatile trading environment to continue over the next few months as the markets try to find certainty in evolving macro conditions. Meanwhile, dividend growth stocks are outperforming the S&P500 year to date, as they are associated with resilient business models.
Equities
The S&P 500 returned -1.5% amid signs of weakness in consumer spending and worries that inflation could gain traction due to a trade war. Data showed a plunge in consumer sentiment and a rise in long-term inflation expectations. Mid-cap stocks return (-1.1%) and small caps (-1.6%). Technology (-3.7%) and communication services (-3.2%) were the hardest hit sectors in the S&P 500; consumer staples (+1.7%) and energy (+0.8%) stocks gained. EAFE markets returned -1.0%; EM markets returned -0.9% with gains in India (+0.9%) offset by losses in Korea (-3.2%) and China (-1.0%).
From a valuation perspective, US large caps trade above +1 standard deviation based on historical forward P/E ratios with the S&P 500 at +1.3. The NASDAQ is at +0.5. For the next 12 months, EPS growth for the S&P 500 is expected to be 10.1% (vs. 6.9% annualized over the last 20 years). For the next 12 months, EPS growth for NASDAQ is expected to be 18.0% (vs. 10.7% annualized over the last 20 years). All US indices, including the S&P 500 (US Large Cap), NASDAQ, Russell Midcap (US Midcap), and the Russell 2000 (US Small Cap) trade at or above their 20-year averages based on forward P/E ratios while the MSCI EAFE (Non-US Developed Market Equities) and MSCI EM (EM Equities) are inline.
Fixed Income
Investment-grade fixed-income sectors had negative returns as the yield curve steepened while spreads widened. Municipals returned -0.1%, US AGG returned -0.1%, and US IG returned -0.2%. HY bond returned -0.4% as spreads widened 23bps while bank loans returned +0.1%. EM debt returned -0.3% as the US dollar was flat.
Rates
Rates fell at the short end of the curve but rose at the long end, reflecting weaker economic growth concerns in the short run but higher inflation expectations in the long run. The recession-watch 3M-10Y spread was unchanged at -5 and remains inverted. The 2Y-10Y spread widened by 4bps to +34. Rates fell in Europe and the U.K. but rose in Japan. The BTP-Bund spread is at 1.12%. 5-year breakeven inflation expectations rose 6bps to 2.63% (vs. a low of 1.88% on Sept 10); 10-year breakeven inflation expectations rose 4bps to 2.37% (vs. recent low of 2.03% on Sept 10); the 10Y real yield fell 4bps to 1.88%. The market now expects between three cuts in 2025 vs the Fed’s guidance of two cuts. At year-end 2025, the market expects the Fed Funds rate to be 3.5% vs. the Fed’s guidance of 3.75%-4.00%.
Currencies/Commodities
The dollar index was flat. The commodities complex rose 0.5%, while energy prices rose 1.5% for the week. Brent prices were slightly higher at $74/bbl. US natural gas prices rose 2.1% while European gas fell 4.1%, both due to weather forecasts.
Market monitors
Volatility rose for equities and bonds (VIX = 22, MOVE = 97); the 10-year average for each is VIX=18, MOVE = 78. Market sentiment (at midweek) remained negative at -25.
Weekly Commentary
Investment Commentary – March 31, 2025
Stuart Katz
Executive Summary
Last week, stocks declined, and bonds rallied as fresh signs of economic weakness and renewed inflation fears disturbed markets. The S&P 500’s closed down 4.4% over the quarter. In particular, Tech Mega-Caps were hit hard. Meanwhile, the yield on 10-year Treasuries fell approximately 10 basis points to ~4.25% as investors sought safety. A sharp decline in US consumer sentiment and a jump in long-term inflation expectations weighed heavily on sentiment. That followed earlier data showing sluggish consumer spending and rising prices — all ahead of this week’s anticipated US tariff expansion. If inflation remains elevated, households may start cutting back on discretionary purchases — a trend that could ripple through the broader economy and squeeze Corporate America. In response, economists have lowered their US growth forecasts, citing weaker consumer activity and reduced capital investment amid escalating trade uncertainty. All eyes now turn to the upcoming jobs report for clues on whether the economy is indeed starting to cool. Weaker payroll reports over the next few months may ultimately lead to a Fed rate cut despite the “one-time” tariff inflationary price pressures.
The analysts’ consensus growth forecast for S&P 500 companies’ Q1 earnings began the quarter at over 11% where it is exiting the quarter lower at ~6.5%. We are particularly focused on potential downward earnings revisions in the Financial Services sector as an indicator of more market capitulation. We expect a volatile trading environment to continue over the next few months as the markets try to find certainty in evolving macro conditions. Meanwhile, dividend growth stocks are outperforming the S&P500 year to date, as they are associated with resilient business models.
Equities
The S&P 500 returned -1.5% amid signs of weakness in consumer spending and worries that inflation could gain traction due to a trade war. Data showed a plunge in consumer sentiment and a rise in long-term inflation expectations. Mid-cap stocks return (-1.1%) and small caps (-1.6%). Technology (-3.7%) and communication services (-3.2%) were the hardest hit sectors in the S&P 500; consumer staples (+1.7%) and energy (+0.8%) stocks gained. EAFE markets returned -1.0%; EM markets returned -0.9% with gains in India (+0.9%) offset by losses in Korea (-3.2%) and China (-1.0%).
From a valuation perspective, US large caps trade above +1 standard deviation based on historical forward P/E ratios with the S&P 500 at +1.3. The NASDAQ is at +0.5. For the next 12 months, EPS growth for the S&P 500 is expected to be 10.1% (vs. 6.9% annualized over the last 20 years). For the next 12 months, EPS growth for NASDAQ is expected to be 18.0% (vs. 10.7% annualized over the last 20 years). All US indices, including the S&P 500 (US Large Cap), NASDAQ, Russell Midcap (US Midcap), and the Russell 2000 (US Small Cap) trade at or above their 20-year averages based on forward P/E ratios while the MSCI EAFE (Non-US Developed Market Equities) and MSCI EM (EM Equities) are inline.
Fixed Income
Investment-grade fixed-income sectors had negative returns as the yield curve steepened while spreads widened. Municipals returned -0.1%, US AGG returned -0.1%, and US IG returned -0.2%. HY bond returned -0.4% as spreads widened 23bps while bank loans returned +0.1%. EM debt returned -0.3% as the US dollar was flat.
Rates
Rates fell at the short end of the curve but rose at the long end, reflecting weaker economic growth concerns in the short run but higher inflation expectations in the long run. The recession-watch 3M-10Y spread was unchanged at -5 and remains inverted. The 2Y-10Y spread widened by 4bps to +34. Rates fell in Europe and the U.K. but rose in Japan. The BTP-Bund spread is at 1.12%. 5-year breakeven inflation expectations rose 6bps to 2.63% (vs. a low of 1.88% on Sept 10); 10-year breakeven inflation expectations rose 4bps to 2.37% (vs. recent low of 2.03% on Sept 10); the 10Y real yield fell 4bps to 1.88%. The market now expects between three cuts in 2025 vs the Fed’s guidance of two cuts. At year-end 2025, the market expects the Fed Funds rate to be 3.5% vs. the Fed’s guidance of 3.75%-4.00%.
Currencies/Commodities
The dollar index was flat. The commodities complex rose 0.5%, while energy prices rose 1.5% for the week. Brent prices were slightly higher at $74/bbl. US natural gas prices rose 2.1% while European gas fell 4.1%, both due to weather forecasts.
Market monitors
Volatility rose for equities and bonds (VIX = 22, MOVE = 97); the 10-year average for each is VIX=18, MOVE = 78. Market sentiment (at midweek) remained negative at -25.
Disclosure and Source
Investment Commentary Sources: Bloomberg. Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. It does not constitute a recommendation or offer to buy or sell any security, has not been tailored to the needs of any specific investor, and should not provide the basis for any investment decision. Please consult with your Advisor prior to making any Investment decisions. The information contained herein was carefully compiled from sources believed to be reliable, but Robertson Stephens cannot guarantee its accuracy or completeness. Information, views and opinions are current as of the date of this presentation, are based on the information available at the time, and are subject to change based on market and other conditions. Robertson Stephens assumes no duty to update this information. Unless otherwise noted, any individual opinions presented are those of the author and not necessarily those of Robertson Stephens. Indices are unmanaged and reflect the reinvestment of all income or dividends but do not reflect the deduction of any fees or expenses which would reduce returns. Past performance does not guarantee future results. Forward-looking performance targets or estimates are not guaranteed and may not be achieved. Investing entails risks, including possible loss of principal. Alternative investments are only available to qualified investors and are not suitable for all investors. Alternative investments include risks such as illiquidity, long time horizons, reduced transparency, and significant loss of principal. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Robertson Stephens’ current written disclosure brochure filed with the SEC which discusses, among other things, Robertson Stephens’ business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. © 2025 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere.
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