The S&P 500 index climbed to all-time highs in the first half of the quarter before retreating in the second half of the quarter.
Investor concerns related to uncertainty around implications of tariffs, government spending cuts, Chinese-AI competition, and asset valuations weighed on U.S. equities.
Performance in the first quarter of 2025 strongly demonstrates the benefits of a broadly diversified portfolio. For example, international developed market equities outperformed U.S. equities.

Market Update
U.S. equities began 2025 with a strong start continuing the gains achieved in 2024. Yet in mid-February, U.S. equities sold off for a variety of reasons:
Uncertainty about President Trump’s newly announced tariffs on our largest trading partners,
Impact of the Department of Government Efficiency’s (DOGE) spending cuts on the U.S. economy,
The announcement of a new Chinese-AI model (DeepSeek) that is perceived to rival western competitors,
Concerns about over-extended equity valuations, particularly in U.S. mega cap companies. Â
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Despite volatility in U.S. equities, certain markets performed nicely in the first quarter which demonstrates the value of a diversified portfolio. For instance, international developed equities posted a 6.9% return for the quarter. The outperformance of this universally under-owned part of the market was driven by a strong cocktail of tailwinds including a relatively weaker U.S. dollar, local fiscal stimulus announcements, and historically cheap valuations. Â
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Fixed income markets have rallied since January, ending the quarter with positive returns. The performance was driven by a spike in investor demand for fixed income, declining long-term interest rates on the heels of government spending cuts, and an expectation that the Federal Reserve may be approaching rate cuts later this year.
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Economic Update
Most of quarter was dominated by economic headlines associated with two policies out of the Trump Administration: tariffs and efforts to reduce government spending via DOGE.
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Uncertainty regarding trade policy has been a hindrance amid the Trump Administration threatening 25% tariffs on Canadian and Mexican imports, a 10% tariff on Chinese imports, and most recently a 25% tariff on all cars that are not made in the U.S. While the Atlanta Fed GDPNow tracker points to a sharp contraction in first quarter GDP, we believe this forecast is being primarily driven by U.S. importers front running purchases ahead of Trump’s tariffs.

Furthermore, efforts by the Trump Administration to reduce government spending via the newly formed DOGE is acting as a headwind for now, as the impact of spending reductions will take time to trickle through the system.
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Despite these headwinds, our belief continues to be that the U.S. economy continues to grow, albeit at a slower clip than past quarters. The aim of the Trump Administration’s policies is to drive interest rates and the U.S. dollar lower by slowing down the economy, but not by so much that it tips the U.S. into a recession.
The U.S. economy continues to benefit from resilient consumer spending, low unemployment, and strong capital expenditures. Should the rate of inflation tick lower, additional support should come from the Federal Reserve later this year, which is signaling interest rate cuts. We are closely monitoring inflation metrics, as a reacceleration of inflation would be problematic for Federal Reserve rate cuts.
Strategic Positioning
After two calendar years of very strong U.S. equity performance, it is not unusual for market volatility. Our expectation is that stock market gains are likely to persist over the intermediate term, but also likely to be more in-line with long-term averages.
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For maximum resiliency, we believe investor equity portfolios should include healthy allocations to various key market segments and investing styles including:
Industries,
Geographies,
Companies of different sizes,
Both value and growth companies,
Active and passive management.
Moreover, we embrace fixed income as a key ballast and income generator for our clients with more conservative investment objectives.
We actively engage with our clients about their liquidity needs. For instance, we used market strength in the first half of the quarter as an opportunity to increase liquidity for clients that had near-term needs, such as for a new home purchase. Subsequently, we have been capitalizing on market volatility to deploy new capital for clients that have longer-term investment horizons and goals, such as those investing for retirement.
Uncertainties are always present in both markets and the economy and can often be overcome with resiliency. While it has been a bumpy start to the year for certain segments of the market, we are confident in the approaches we have taken.
Disclosure
RISE Investment Management, LLC ("RISE" or "RISE Investments") is an investment adviser registered under the Investment Advisers Act of 1940. Registration of an investment adviser does not imply any level of skill or training. This publication is solely for informational purposes and past performance is not indicative of future results. Securities investments are subject to risk and may lose value. Any historical returns, expected returns, or projections are provided for informational purposes only. Any description of products, services, and performance results of RISE contained in this publication are not an offering or a solicitation of any kind. No advice may be rendered by RISE Investments unless a client service agreement is in place. Advisory services are only offered to clients or prospective clients where RISE Investments and its representatives are properly licensed or exempt from licensure. All of the information in this publication is believed to be accurate and correct as the date set forth. RISE does not have or accept responsibility or an obligation to update such information.