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Investment Commentary April 2025 Thumbnail

Investment Commentary April 2025

Investment Commentary

Glen Eagle

April 2025 Investment Commentary

https://conta.cc/4j0lV6F 

In our January newsletter, we wrote,  “The S&P 500 had an astounding 57 record highs in 2024, the fifth most for any year since 1953.(1)  Needless to say, this was an anomaly rather than the norm, and we believe a stock market correction of around 10% would be expected over the next year.”  While there might be the temptation to applaud our foresight with this commentary, some humility must be found in the fact that we did not, nor could not, have predicted what would ultimately lead to the correction, the rollout of the highest level of import tariffs since 1939, or the pace at which the market pullback would occur.

It is during these types of rapid market downfalls, however, that intelligent investors can distinguish themselves from the crowd - by maintaining control over their emotions. As Benjamin Graham, renowned investor and mentor to Warren Buffet, once said, “The investor’s chief problem—and even his worst enemy—is likely to be himself.”   

 To defeat this internal “enemy,” our Glen Eagle Investment Committee often finds it helpful to review history to both understand what may lie ahead over the next few months and provide our clients with the supporting evidence they will need in order to maintain their composure during the stock market’s fluctuations.

  •  Current Situation: The stock market is now down -13.73% in 2025.(2) When compared to prior administrations since 1950, this would be the second worst start in the first 75 days in office.  Only George W. Bush in 2001 had a worst start.(3)  The question, which will be debated by political pundits and economists alike, is whether the market’s response will be closer to 2018 or something altogether new.  During President Trump’s first term (2018), the stock market dropped -4.4% in response to the trade war but rapidly rose 31.1% in 2019 as trade deals were announced.(4)  So far, the market is indicating that this trade conflict could be different due to the scale of the tariffs and the risk of recession, but time is still needed to see the economic impact, given that the tariffs were just announced on April 2nd. 
  •  Market Corrections:   Since 1950, there have been 56 pullbacks of 10% or more.  Twelve months after those corrections, stocks were higher 49 times.  Of the seven times that the stock market was not higher one year later,  six of them came during an economic recession.(5)  As a result, it is fair to say that whether the economy is pushed into a recession or not will impact how the stock market responds.  If a recession does occur, it is helpful to remember that in the median recession, stocks tend to fall 24%.(5) 
  •  Moving to Cash: During times of increasing volatility, investors often rush to move money out of the stock market and into cash.  As shown in the image below, history has always provided us with new reasons to be fearful.  As a result, this natural inclination to rush to cash is something we have studied many times before.  Today’s higher interest rates have led investors to pile a record 7.4 trillion dollars into money market funds, which are providing relatively attractive returns of around 4%.  Yet, this strategy may not yield benefits over the longer term.  When money markets previously peaked at record highs in 2003, 2009, and 2020, stocks outperformed money markets by an average of 15.3% annually over the next three years. (6)

 Reasons to Sell and S&P 500 Price (Since 2009)

 

  • Long-Term Focus: During times like this, we often find that investors fall from extreme exuberance (ex: the excitement we saw just a few months ago over stocks’ growth potential from developments in artificial intelligence) to extreme pessimism.  It is only natural for individuals to think of recent examples of the market collapse to support their growing fear of the future.  For example, one can look at the Great Financial Crisis when the S&P fell an astounding -56.8%.  Yet, we also like to point out that if you had been the “world’s worst investor” and invested all your money on October 9, 2007 (at the peak), you would still have realized an annualized return of 7.9% today.(7) To be clear, this “long-term focus” is not meant to discount the very real concerns that retirees or older investors have given that they will not necessarily be investing for three to four more decades.  It is, however, meant to display the very real risks of allowing our emotions to dictate the actions that we take in our portfolio, especially during large market drops.

In today’s environment, it is hard not to see the risks of a recession rising.  This could be particularly damaging to both the economy and the stock market if it leads to stagflation (the combination of higher unemployment and inflation).  That being said, history has shown us that the one true way to permanently destroy wealth is by selling out of the majority of one’s stocks in the midst of a market correction.  Over time, corporations have proved resilient and continued to innovate and increase their earnings, and, thus, their stock prices over time.  This is one reason the stock market has provided positive returns over any one-year time period 77.4% of the time and 97.4% of the time when looking at any 10-year interval since 1937.(8)

 As always, please know that you can reach out to our advisory team anytime you have questions or concerns, as the market continues to be volatile over the next few months.

 Wishing you and your family a wonderful and warm Spring season,

 The Glen Eagle Investment Team

Disclosure: This commentary is furnished for the use of Glen Eagle Advisors, LLC, an SEC Registered Investment Advisor; Glen Eagle Wealth, LLC, Member FINRA & SIPC. The information presented is believed to be factual and up to date, but we do not guarantee its accuracy and is subject to change without notice.   Commentary is for informational purposes only and is not meant to be investment advice or a recommendation of securities to any individual. It is not prepared with respect to the specific objectives, financial situation, or particular needs of any specific person. Investors reading this commentary should consult with their Glen Eagle representative regarding the appropriateness of investing in any securities or adapting any investment strategies discussed in this commentary.

 1. MFS “Beyond the News” 01.06.2025 2. As of 04.06.25 3. The Irrelevant Investor “He Pushed the Red Button” 4. Capital Group: “Guide to Tariffs: How tariffs impact the economy, markets and investors” 5. Barrons “The Stock Market Had Its Worst Week Since the Pandemic.  Keep Hope Alive.”6. BlackRock “Student of the Market” 7. As of 04.02.25 8. First Trust: “Client Resource Kit: Markets In Perspective”