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Ultimately, this is a reason we encourage diversification instead of casting off bonds and international allocations when
they have underperformed for a while. If all holdings in a portfolio are highly correlated, there will be no significant cushion
if and when those investments fall from favor. Figure 5 illustrates the YTD returns for multiple asset classes. Note that the
S&P 500's losses are not representative of a global sell-off in equities nor have US bonds also lost ground this year.
8.49%
-5.88%
3.22%
2.30%
S&P 500 Developed Markets Emerging Markets US Bonds
YTD Return
Source: Return data from Bloomberg. As of March 13th, 2025. Developed Markets = MSCI EAFE. Emerging Markets = MSCI Emerging Markets. US Bonds = Bloomberg US Aggregate Total Return.
Wrapping Up
Tariffs, looming federal budget cuts, and high US equity valuations are the likely causes of this new market correction.
This exact mixture of correction "ingredients" may be new, but corrections themselves are not. Yes, this is a nervous time
for investors, however history illustrates that stock market corrections are not unusual. A correction can happen without
a corresponding economic recession, and the majority of corrections don't turn into more serious bear markets (which
occur when the market drops 20% from its high)
5
. While those historical facts likely won't ease all anxiety, we hope they
can help you understand the context around what is happening. Nobody knows the future, but we continue to believe in
diversification and steadiness during market volatility. As always, please reach out to us with any questions.
5 Data from YCharts.
20250318-4330183
