Weekly Comment

Q1 2025 ended on a strong note, despite ongoing challenges in the economic landscape.

With nearly 85% of S&P 500 companies having reported, the first-quarter earnings season for 2025 showed encouraging strength. Earnings per share (EPS) grew 12% year over year, well above expectations. But corporate commentary also reflected a more cautious tone: mentions of terms like “tariffs” and “recession” rose sharply in investor calls. While consumer spending held up, some pressure is beginning to show in industries like restaurants, airlines, and premium retail. 
On the other hand, mega-cap tech companies stood out. Their earnings grew 29% year over year (vs. 9% for the rest of the S&P 493), driven by strong AI investments. Interestingly, their valuations relative to the broader index are now at their lowest since 2017. 

Market implications: 

Q1 2025 earnings helped support the S&P 500’s rebound in April, but they reflect past performance. Expectations for the rest of the year continue to trend lower and could be revised further as economic headwinds persist. 

Q1 2025 Earnings: Double-digit growth delivered. 

Source: Goldman Sachs. 

The Federal Reserve kept rates unchanged but struck a more cautious tone.  

A Pause Amid Uncertainty  

Job Market Stays Strong, But Economic Uncertainty Tempers Expectations for Quick Changes  

As expected by markets, the Federal Reserve kept its benchmark interest rate steady at 4.25%–4.5%, a level it has maintained since December. While the labor market remains solid, with 177,000 new jobs added in April, the Fed acknowledged growing economic challenges.  

Inflation remains high, and after the GDP contraction in Q1, the Fed’s statement highlighted a rise in economic uncertainty. The Fed stressed its commitment to monitoring risks that could impact its dual mandate: keeping inflation under control and supporting employment.  

According to Jerome Powell, weaker consumer and business outlooks are largely due to an uncertain trade environment.  

Looking ahead, the Fed reiterated that it’s prepared to adjust its policy stance if needed. Following the announcement, expectations for a rate cut in June dropped significantly.  

Market Implications  

The outlook remains uncertain. While the Fed held rates steady, the lower likelihood of immediate cuts highlights the importance of closely watching the economic and trade landscape.  

Fed Funds Rate Expectations  

Source: JP Morgan

Discover how alternative assets strengthen portfolios in uncertain times. 

The strategic role of alternative investments 

In an increasingly dynamic economic environment, relying solely on traditional stocks and bonds can leave portfolios more exposed to concentration risk and market sensitivity. Alternative assets open opportunities to diversify, hedge against inflation, and enhance long-term resilience. 

How each asset class contributes: 

• Private credit: Generates attractive income with floating rates that mitigate interest rate risk. 

• Private equity: Captures innovation and growth opportunities outside the public markets. 

• Real assets (Real Estate and Infrastructure): Provide stable cash flows, inflation protection, and long-term contracts. 

• Hedge funds: Reduce volatility and deliver returns with low correlation to traditional markets. 

Rather than simply seeking exceptional returns, the focus is on complementing and strengthening the portfolio with instruments that add true stability and diversification in challenging economic contexts. 

Market implications: 
Incorporating alternative investments into traditional stock and bond portfolios can help manage risk and enhance returns. 

Risk–Return Profile of a Traditional Portfolio Including Alternative Investments (Q1 1990 – Q3 2024) 

Source: JP Morgan 

Key insights to stay focused and invest strategically in a changing environment.

Market volatility in perspective: 5 key ideas

The recent 90-day tariff pause has not eliminated uncertainty in the markets. While ups and downs continue, history reminds us that volatility is often temporary and that markets have a remarkable capacity to recover. Here are five key ideas to help maintain perspective and stay focused on your long-term goals:

1. A long-term view changes everything. Stepping back from day-to-day noise allows for better decision-making. Just like in 2018, markets can bounce back strongly—as they did in 2019.
2. Recoveries often follow declines. After a drop of more than 15%, markets have risen an average of 52% in the following 12 months. Keep the inversion is often wiser than reacting.
3. Bear markets are shorter than they seem. On average, they last 12 months compared to 67 months of bull markets. Trying to anticipate them may mean missing out on recovery opportunities.
4. Fixed income brings stability. During equity market corrections, high-quality bonds have shown their defensive role.
5. Staying invested is the best strategy. Discipline has consistently paid off. A portfolio invested in the S&P 500 over the last decade would have tripled in value despite the COVID pandemic and interest rate hikes.

Market implications: History doesn’t repeat itself. A diversified portfolio and a long-term approach remain the best tools for navigating uncertainty.

Market returns have historically been strong following significant downturns.

Source: CapitalGroup

Inflation slowed in March and is moving closer to the Federal Reserve’s target. 

Key highlights from the report: 

The Consumer Price Index (CPI-U) fell 0.1% in March, marking a positive shift compared to the 0.2% increase in February. This decline reinforces the trend toward more controlled inflation amid a still-challenging monetary policy environment. 

• Annual inflation: 2.4%, down from 2.8% in February and better than the estimated 2.6%. 

• Energy: -2.4% monthly, driven by a 6.3% drop in gasoline prices. 

• Food: +0.4%, with increases both at home and away from home. 

• Core inflation: +0.1% monthly and +2.8% annually, the smallest increase since March 2021. 

• Shelter: +0.2% monthly, +4% annually, the lowest rise since 2021. 

• Other categories: Declines in airfare, used cars, insurance, and recreation. 

The report suggests a gradual yet steady slowdown, bringing inflation closer to the 2% target. However, the Fed remains cautious due to persistent pressures in certain sectors and uncertainty surrounding trade policies. 

Market implications: 
The consensus now expects between three and four federal funds rate cuts (currently at 4.25%-4.50%) throughout the year. No changes are anticipated for the upcoming May 7 meeting. 

Year-over-year percentage change in headline and core inflation 

Source: U.S. Bureau of Labor Statistics 

S&P 500 earnings rise amid uncertainty.

Key points from Q1 2025 earnings season 

By the end of Q1 2025, analysts have adjusted their earnings expectations. Although the estimated growth has dropped to 7.3% year-over-year from 11.7% at the end of December, the S&P 500 is still on track for its seventh consecutive quarter of expansion. Additionally, revenue growth is expected to reach 4.2%, with net margins at 12.1%. 

The technology, healthcare, and utilities sectors lead earnings growth, while energy and materials decline. Despite current economic uncertainty, corporate performance continues to show positive signs, which could translate into an 11.5% earnings growth for the full year. 

Market implications: 
With the first quarter closing amid volatility due to the potential effects of tariff implementation, investors will turn their attention to the upcoming earnings season. 

S&P 500 year-over-year earnings growth: Q1 2025 

Source: FactSet 

A straightforward look at how market corrections happen, what causes them, and how to stay on track when they do. 

Making Sense of Market Corrections 

A market correction is a drop of about 10% to 20% from a recent high—and they’re more common than many realize. Historically, the S&P 500 experiences a correction every 18 to 24 months, and in most cases, the market bounces back within four to six months. 

What Do Corrections Look Like? 

• Mild (10–12%) – Usually triggered by shifts in stock valuations. 
• Standard (12–17%) – Often tied to interest rate changes or macroeconomic concerns.
• Deep (17–20%) – Can be caused by financial system stress or major global events. 

What Typically Causes Them? 

• Fed rate hikes 
• Rising inflation 
• Global tensions or conflicts 
• Lower-than-expected corporate earnings 
• Market running “too hot” (i.e., overvalued) 

A Few Recent Examples: 

• 2018 (-19.8%) – Trade war headlines 
• 2020 (-33.9%) – COVID market shock 
• 2022 (-25.4%) – Inflation spike and Fed rate hikes 

How to navigate them: 
During these periods, the most important thing is to stick with your investment strategy, stay diversified, and keep focused on your long-term goals. It’s easy to get caught up in dramatic headlines, but making impulsive moves often does more harm than good. 

At the end of the day, getting through a correction is about having a plan, staying disciplined, and remembering that volatility is a normal part of investing. 

Market downturns have occurred every year.

Source: Capital Group

The Fed keeps rates at 4.25%-4.5% but revises growth and inflation projections.

March Monetary Policy Announcement 

 The Federal Reserve decided to keep its benchmark rate at 4.25%-4.5%, in line with expectations. However, its message was more cautious, as it lowered its growth forecast and raised its inflation estimate for 2025. 

Key Points: 

• Expectations for two rate cuts this year remain, with rates closing at 3.9%. 
• The pace of quantitative tightening is slowing, adjusting the reduction of bonds on the balance sheet. 
• The 2025 growth projection drops to 1.7% (from 2.1%). 
• Core inflation is estimated at 2.8%, above the previous 2.5% forecast. 
• Trade tensions are rising due to potential tariffs amid an economic slowdown. 

Markets will closely watch the Fed’s next moves and the evolution of trade tensions. 

Market Implications: 

 Markets will remain attentive to the Fed’s upcoming decisions and the development of trade tensions. 

Fed Indicator Update (March vs. December) 

Source: Federal Reserve

Buffett highlights Berkshire’s performance, liquidity strategy, and growth in Japan.

Warren Buffett’s highly anticipated annual letter is here, and as always, there’s plenty to analyze. In 2024, Berkshire Hathaway reported an operating profit of US$47 billion, a 27% increase despite more than half of its businesses experiencing a decline in earnings. 

• Liquidity Strategy: Berkshire ended the year with US$334 billion in cash. Despite speculation, Buffett reaffirmed that his focus remains on stock investments. 
  
• Beyond the U.S.: Berkshire continues to expand its presence in Japan, with investments in five major conglomerates. 
  
• Insurance Sector on the Rise: Operating profits in insurance grew 66% year-over-year, solidifying this business as the cornerstone of the firm. 

Buffett expressed optimism about the future of American businesses. While he didn’t directly address his retirement, he acknowledged that Greg Abel’s leadership transition is approaching. 

Top 10 holdings in Berkshire Hathaway’s investment portfolio 

*Figures as of December 31, 2024 – Cash position: US$334 billion.  

Source: CNBC 

Tariffs are on investors’ radar due to their impact on the economy and markets.

Now more than ever, tariffs are a key topic in the global economy. Not only do they affect inflation and corporate profitability, but they have also become tools for political negotiation.  

Since his campaign and now in his administration, Donald Trump has pushed for tariffs on imported goods from China, Canada, and Mexico, aiming to protect U.S. industry and reduce the trade deficit. However, these measures can have side effects such as trade tensions and rising consumer prices. 

🔹 What are tariffs? Tariffs are taxes imposed by governments on imported goods to make them more expensive and encourage the purchase of domestic products. They can also be used to generate revenue or as a political pressure strategy. 

🔹 How do they work? When a country imposes a tariff, the importing company pays the tax, either absorbing the cost or passing it on to the end consumer through higher prices. 

🔹 Impact on businesses: As production costs rise due to more expensive materials, companies often increase their product prices, affecting both businesses and consumers. 

In a nutshell, tariffs can benefit certain local industries but also make products more expensive and impact the global economy. Staying informed is key to making strategic financial decisions in response to these changes. 

Trade barriers: U.S. tariffs have risen significantly in recent years. 

Source: Capital Group