Global Market Review and Outlook

Capital markets around the globe were whipsawed in the first quarter of 2025. The year started well, driven by the prospects of continued economic growth, falling inflation, and potentially lower interest rates. Markets responded to the favorable backdrop and the S&P 500 hit an all-time high in February. Sentiment changed quickly, however, as the threat of broad-based tariffs turned the market narrative upside down. Volatility ensued as worries over a resurgence in inflation, trade tensions, and a potential recession mounted. In the end, the U.S. equity market declined 4% in the period (as measured by the S&P 500), its first quarterly decline in six quarters. Smaller domestic equities fared even worse (-9.5%).

International equites—in both developed and emerging markets—were perhaps surprisingly resilient, advancing 7% and 3%, respectively. Conceptually, tariffs should impact these regions disproportionately, but pro-growth policies, especially in Europe and China, and a weaker U.S. dollar buoyed foreign markets.

Fixed income provided a much-sought-after safe haven in the period. Capital poured into U.S. Treasurys in a flight to safety that pushed prices higher. As a result, the Bloomberg Aggregate index gained 2.8% in the period.

Source: Factset

Developments in Washington took center stage in the quarter and trade policy has been, and remains, a major source of economic and market uncertainty. President Trump’s initial announcement of new tariffs on imports from Canada, Mexico, and China was magnified on “Liberation Day,” when broad-based tariffs were placed on countries around the world. The ultimate timing, magnitude, and effect of these tariffs remain to be seen. However, directionally, it is likely that the impact, at least in the near term, will be to dampen the economic expansion.

Fortunately for now, the economy in the U.S. is on fairly solid footing. Real GDP grew at an annualized rate of 2.4%, while the Consumer Price Index (CPI) rose 2.4% year over-year in March, reflecting moderate inflationary pressures. Meanwhile, the labor market remains in good standing, with the unemployment rate hovering around 4%. Wage gains continue to outpace inflation, resulting in positive real wage growth—a key factor in maintaining consumer resilience. All in, the economic environment enabled corporate earnings growth last quarter of 18% year-over-year for the S&P 500, the highest rate since 2021.

The economic outlook for the rest of 2025 is becoming increasingly cloudy because of the tariff threat. If tariffs are enforced as currently contemplated, the likely result would be higher inflation and lower trade growth. Business investment could decline and consumer spending may be pressured as well. While this combination has us thinking more about a potential recessionary environment, we are not making that our base case yet in this fluid and seemingly ever-changing environment.

In response to the evolving economic landscape, the Federal Reserve (Fed) has acknowledged potential inflationary pressures from tariffs and moderated expectations for economic growth in 2025. However, the Fed’s ability to lower interest rates to respond to the environment may be limited as it tries to balance the need to support economic growth with the imperative to keep inflation in check. Should tariffs be implemented as currently considered, any persistence of inflation could force the Fed to delay the pace and timing of any rate reductions. Elevated rates would keep borrowing costs for both consumers and businesses high, which could further dampen economic activity. It’s a complex environment for the Fed as well.

Transitioning to capital markets, the S&P 500 has declined roughly 10% from its peak in February. While unsettling, market corrections are normal occurrences. These pullbacks can be healthy, allowing valuations to reset, excesses to moderate, and expectations to recalibrate. If the appropriate conditions exist, these drawdowns oftentimes can present more attractive entry points for high-quality assets. Over the last 45 years, the average intrayear drawdown has been 14.1%. Despite this, the S&P 500 has posted positive annual returns in 34 of those 45 years.

Whether the market bounces back to post a positive return in 2025 remains to be seen. The factors dictating the path forward are perhaps as fluid and uncertain as any we have seen in some time. In the long run, economic growth usually wins out, but today’s fiscal policy (tariffs) and monetary policy (interest rates) are also likely to play an increasingly important role in determining the next meaningful market move.

Outside the U.S., international markets are in a period of transition as well. Supported by stimulus measures, Europe has seemingly shifted its economic priorities by instituting major spending increases and structural reforms targeted to both military and economic growth. If successful, international equities, having lagged for years relative to their U.S. counterparts, may offer more relative value going forward.

Fixed-income assets have not been immune to the volatility but have performed as we would hope in the current environment. Corporate bonds sold off, with investment-grade spreads widening by 12 basis points for the quarter, while lower-quality issuers saw high-yield spreads widen by 55 basis points. Despite uncertainties, bonds have delivered solid returns to date. With future market unknowns, it is reassuring to see bonds behave as a safe haven, and we continue to believe high-quality assets within fixed income provide overall stability to portfolios where appropriate.

The consistent yet unpredictable flow of headlines has certainly kept us busy recently. While we do our best to ascertain the impact of all these new developments, we believe trying to time the market in this environment based on the news of the day is a fool’s errand. Rather, we remain committed to identifying investments we believe exhibit high-quality characteristics and the resilience to perform across full market cycles. We will remain prudent in our approach and deploy capital only where we believe both the risks and returns can be reasonably quantified. Until then, we will remain patient stewards of your capital.

Finally, we are very happy to announce that GreenBridge is growing! Jaime Villalobos has joined our team as a client relationship associate. Jaime has spent over a decade serving private wealth clients at UBS as well as leading architectural boat tours here in Chicago during his spare time. We are thrilled to have him on board, and we look forward to you all meeting and interacting with him. Welcome Jaime!

Have a great spring and summer! Please reach out with any questions or comments. We would love to hear from you.

Regards,

John, Cam, Lauren, and team