NYLI WMC Small Companies Fund Q1 2025 Commentary

2025-06-30 15:18:00 ET

Market Review

• U.S. equities registered their first quarterly loss since the third quarter of 2023. Volatility surged and risk sentiment waned as markets grappled with the implications and considerable uncertainty surrounding the new administration’s policies on trade, immigration, fiscal spending, tax cuts, and deregulation. Escalating tariffs and the prospect of additional levies in April worsened the outlook for inflation and economic growth, fueling fears of stagflation and recession. Against a turbulent market backdrop, technology indices fell sharply, and growth and small-cap stocks significantly underperformed their value and large-cap counterparts, respectively. Deteriorating business and consumer sentiment threatened to curtail spending, although economic activity indicators released in March suggested that the U.S. economy remained on a solid footing. The labor market was solid, and the services sector stayed in expansionary territory. The U.S. Federal Reserve (Fed) left interest rates unchanged as officials continued to monitor how aggressive trade policies impact inflation, spending, and investment. The Fed cut its 2025 economic growth forecast to 1.7%, from 2.1%, and hiked its annual core inflation estimate to 2.8%, from 2.5%, signaling a greater risk of stagflation. According to FactSet, first-quarter earnings for companies in the S&P 500 Index are forecast to grow 7.3% year over year, below the 10- year average earnings growth rate of 8.5% and significantly lower than 18.3% in the fourth quarter.
• The Russell 2000 Index returned -9.5% over the period. Within the index, 10 out of 11 sectors declined for the quarter. Information technology and consumer discretionary were the bottom performing sectors, while utilities and consumer staples were the top performing sectors for the period.

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