MARKET COMMENTARY
The first quarter of 2025 was marked by heightened uncertainty, driven by significant policy shifts and market volatility. Trade tariffs
were a key theme as President Trump announced tariffs on certain countries and goods, but as the quarter came to an end, investors
were awaiting April 2nd, called “Liberation Day” by President Trump, and his announcement of a much broader implementation of
tariffs.
The labor market continued to show remarkable resilience in the face of potential disruption, and though job creation has slowed, the
unemployment rate has remained relatively stable around 4.1%. The annual inflation rate fell to 2.8% in February, but consumer
inflation expectations have risen sharply. Consumer confidence also took a significant hit as the University of Michigan’s consumer
sentiment index dropped to its lowest level since 2022, with consumers concerned about unemployment, inflation, and overall
economic conditions due to uncertainty around trade policy. Retail sales showed modest growth, but the on-again, off-again nature
of policy announcements contributed to a growing sense of economic unpredictability for consumers and businesses alike.
During its March meeting, the Federal Reserve maintained its target range for the federal funds rate at 4.25%-4.50%, opting for a
wait-and-see approach amid resurfacing inflation pressures and growing uncertainty from newly imposed trade tariffs. Chair Powell
reiterated that the Fed is in no rush to adjust interest rates, noting that the FOMC can wait for greater clarity on the effects of these
policies on the economy before acting. March economic projections showed a reduction in growth forecasts for 2025 and an increase
in inflation estimates, though Fed officials still expect a total of 50 bps in rate cuts this year.
U.S. treasury yields fell in Q1, reflecting growing concerns over the economy and heighted uncertainty surrounding President Trump’s
agenda, with the 2-year and 10-year both finishing 36 bps lower to 3.88% and 4.21%, respectively (although bond yields have since
retraced higher in May). High yield bond spreads widened by 63 bps, and the Barclays Aggregate Bond Index finished the quarter
up +2.78%.
Stocks began 2025 with strong momentum, with the S&P 500 hitting a new high in mid-February, however, rapidly evolving tariffs
announcements and heightened trade policy uncertainty later in the quarter severely impacted investor sentiment. Fears of a trade
war and its potential impact on global supply chains and tech demand caused investors to rotate away from growth-oriented megacap
tech names such as the “Magnificent Seven” (S&P 500 -4.28%, Nasdaq -10.26%) and into value stocks with more stable and
defensive characteristics (Dow -0.87%), and small caps (-8.94%) also fell notably during the first quarter. Non-U.S. equities,
represented by the MSCI EAFE Index and MSCI Emerging Market Index, finished the quarter +7.05% and +2.99%, respectively,
showed resilience relative to US markets.
ALTERNATIVE INVESTMENT COMMENTARY*
Hedge funds started 2025 with mixed results, as volatility spiked in March and market fears of a looming recession grew due to
trade tariff disruptions bringing the HFRI Fund-of-Funds index down 1.0%. High beta strategies were among the worst-performing
strategies for the quarter as the HFRI Equity Hedged index and HFRI Event-Driven index fell by 1.4% and 1.1%, respectively. The
“all-weather” strategies continued another impressive quarter amid market volatility as the HFRI Equity Market-Neutral and HFRI
Multi-Strategy index rose 1.5% and 1.2%, respectively. The Family Management platform of alternative investments saw a
performance dispersion similar to the above-mentioned indices. We are pleased with the majority of our core managers as they
were able to protect and grow capital to start 2025, and we remain confident in them going forward.
*HFRI Performance taken as of May 14th, 2025.
This material contains the current opinions of Family Management Corporation and its affiliates (collectively, “FMC”), which may change without notice. This material is distributed for informational purposes only. It is not a recommendation or offer of any investment or strategy. Nothing herein shall be considered a solicitation to buy or sell, or an offer to buy or sell, to or from any persons in any jurisdiction where such solicitation, offer, purchase, or sale would be unlawful. Information contained herein has been obtained from sources believed to be reliable, but are not guaranteed. FMC provides no guarantees regarding the performance of any investment or strategy. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future performance and individual client results will vary. No part of this material may be reproduced in any form, or referred to in any publication, without the express written permission of FMC.
