META - NYLI Fiera SMID Growth Fund Q1 2025 Commentary
2025-07-03 14:40:00 ET
Market Review
- U.S. equity market returns generally turned negative for the first quarter of 2025 with the S&P 500 Index falling -4.30%. However, there was a huge divergence in performance by style. For instance, the Russell 1000 Growth Index had a return of -9.97% while the Russell 1000 Value Index returned +2.14% - a spread of more than 12%. Smaller indices were weak for the most part irrespective of styles, though growth generally lagged value. The Russell 2000 Growth Index returned -11.1% while the Russell 2500 Growth Index returned -10.8%. In general, the smaller indices, delivered anywhere from a -6 to -11% for the quarter.
- For more than a year, we have been in an earnings-driven momentum led market. Multiples have expanded and the bar for sustaining earnings growth has also gone up. Operating Leverage in the system has been strong. Ex- Energy, earnings were up 12%. The technology sector was the standout, it contributed to almost 2/3rd of the growth in earnings and more than half the market’s return in 2024. In the first quarter, the technology-heavy NASDAQ had its worst quarter in 3 years, down -10.3%. There are concerns that the Artificial Intelligence ((AI)) frenzy may be too stretched in the short-run and hundreds of billions of dollars pegged for data center infrastructure might be pulled back. This has led to a dramatic change in performance from the so- called Magnificent 7 cohort, many of which are down 20% (Nvidia (NVDA), Tesla (TSLA), Amazon (AMZN), Alphabet (GOOG)(GOOGL), Meta (META)) or more from recent highs.
- Last year, momentum and size were the biggest factors driving equity returns. Since Feb 18th, we have had one of the worst drawdowns of momentum in decades. In other words, in less than a month, stocks with the best momentum characteristics underperformed dramatically, even after exceeding earnings expectations. Clearly the high valuations and a potential change in the forward growth trajectory is having an impact.
- On the other hand, stocks with reasonable valuations, steady and predictable earnings, modest leverage and low betas have held up reasonably well during this volatile period, dovetailing well with our approach of emphasizing stability and growth in our Funds.