12 Apr Market Update: First Quarter 2025
I’ve re-written this update three times now – once for each major change in the investment news over the last two weeks. Headlines have been very unsettling so far this year. Trade tensions, recession fears, inflation concerns, and federal budget cuts have all contributed to market gyrations. Stock-market volatility spiked in late February and early March, and the S&P 500 dipped into correction territory. At the time of this writing in April, the S&P 500 is down 8.8% for the year, and we had our most volatile day in stocks since the dot-com bubble!
In other areas of the market, US Small Cap was down -9.5%, and International Developed was up +8.1% in the first quarter. On the fixed income side, bond yields moved lower, helping support bond prices as investors sought stability amid the turbulence. Intermediate-term Treasury bonds gained +3.8% while short-term bonds picked up +1.6%.
This kind of turbulence can be worrying, and the content I’m seeing on my news feeds these days certainly isn’t helping. Fortunately, I’ve got a bit of perspective to help calm frazzled nerves. The data referenced in this article is sourced in the footnotes.
Volatility Isn’t All Bad
Investors often associate volatility with losses, but that’s not the full picture. In reality, volatility measures how much asset prices fluctuate relative to an average—both up and down.
In fact, the stock market sometimes fares very well after periods of high volatility. Take March 2020, in the early days of the Covid pandemic. The VIX volatility index hit its all-time high on March 16 of that year. The S&P 500 started recovering only four days later, then gained 144% through April 1, 2025. In the depths of our Covid despair, we never would’ve bet on those returns.
Tens of millions of trades happen daily, and asset prices continuously adjust to reflect new information – this is volatility. During times of great uncertainty, new information can change the outlook dramatically. Increased volatility during those periods is just the market doing what it does: pricing assets based on the information that’s available. When information is generated and changes rapidly, as we’re seeing now, volatility in stock prices is the result.
While we can’t predict the future, we can look at historical spikes in volatility to try to assess long term market behavior. An article by Bloomberg suggests that when examining market performance after volatility spikes (as measured by the VIX or similar volatility indexes), several encouraging patterns emerge:
Short-term returns (1-3 months after high volatility)
- Markets have shown above-average returns in the 1-3 months following extreme volatility
- The data shows average returns of approximately 5-7% in the three months following VIX readings above 30
- It’s been suggested this represents the “fear discount” being priced out as markets stabilize
Medium-term returns (6-12 months after high volatility)
- 6-month returns following VIX spikes above 30 have historically averaged around 15%
- 12-month returns following major volatility events have averaged 20-25% compared to the long-term average of about 10%
- The 2008-2009 financial crisis recovery saw approximately 60% returns in the 12 months following peak volatility
Key historical examples:
- After the October 1987 crash: 12-month return of 23%
- After the 2008 financial crisis peak volatility: 12-month return of approximately 58%
- After March 2020 COVID volatility spike: 12-month return of about 75%
The relationship between high volatility and subsequent returns is sometimes called the “volatility effect” – extreme market fear often creates buying opportunities as assets become oversold. However, timing these entries perfectly is notoriously difficult, and not all high-volatility periods lead to immediate strong recoveries.
The constant recalibration of values creates opportunities for long-term investors. It may be heartening to remember volatility can work to your advantage as long as you keep investing.
A Word on Down Markets
The S&P 500 lost 4.6% in the first quarter of 2025. Between February 19 and mid-March, it fell more than 10% from its high, inching into correction territory.
It’s completely natural to feel uneasy when markets decline, but once again, perspective is key. Remember that no one can predict the future, which may look very different than the recent past. As CFA Rubin Miller put it in his newsletter, “The market is never ‘going down’—it only has gone down and may go down further.” Stocks may turn up six months from now or this afternoon. We’ve seen such a great example of this concept in the first nine days of April, with markets down 5% one day and up 8% the next.
Downturns are a routine part of market cycles. Naming these drops can be empowering—much like the tale of Rumpelstiltskin, in which a young woman gains power over a troublesome little man after discovering his name. To that end:
- A dip is a small, temporary drop in stock prices
- A correction is a decline of 10% to 20%
- A bear market is a loss of 20% or more over a sustained period
It also may help to understand that downturns are pretty frequent, and historically, they don’t last forever. The S&P 500 has had 27 corrections since November 1974, including the one in March. Only six of those became bear markets.
What’s more, upturns tend to last a lot longer than downturns. There have been 18 bear markets in the S&P 500 since 1926, lasting a total of 177 months. By contrast, there have been 19 bull markets, and they have lasted nearly 1,000 total months.
And a correction does not necessarily mean a bad year. The broad Russell 3000 stock index had intra-year declines of at least 10% in 25 of the last 45 calendar years, according to research from Dimensional. In 17 of those 25 years, the index ended the year up.
Charting a Course in Stormy Seas
The market may have you feeling seasick about now, but through all the ups and downs over the years, stocks have stayed on a positive long-term trajectory. Your portfolio is designed to help you capitalize on the market’s long-term growth, with proper diversification and rebalancing to help manage the rough times. Only changes in your goals or circumstances should require adjustments to your plan—and we’ll be here to help you through that process when the time comes.
In the meantime, let us know if you have any other questions. Wishing you and yours a very happy Spring.
Warm regards,
Angela Wright
Sources
Source: Schwab Center for Financial Research, “What History Tells Us About Volatility and Returns”
Source: CBOE Global Markets, “VIX Index and Volatility Research”
Source: Fidelity Investments, “Market Analysis of Volatility and Subsequent Returns”
Source: JPMorgan Asset Management, “Guide to the Markets”
Source: “The VIX, the Variance Premium and Stock Market Volatility,” Journal of Econometrics
Source: Bloomberg https://www.bloomberg.com/news/articles/2025-03-10/vix-nears-30-first-time-since-august-shock-on-tariff-anxiety?utm_source=chatgpt.com
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