This year highlights the importance of avoiding investment decisions based on forecasts or political events. Investors who exited the stock market prematurely turned a temporary decline into a permanent loss. Significant volatility, particularly in the U.S. stock market, has left investors with mixed emotions ranging from fear and confusion to shock and relief. As of May 31, the Standard & Poor’s 500 Index, which tracks the performance of the 500 largest companies in the U.S., appreciated by about 1% since the start of the year.1 However, this figure does not tell the full story of the market’s intra-year movement.
On April 2, “Liberation Day,” President Trump announced sweeping tariffs, which sent the global markets into a tailspin. U.S. equities entered a technical market correction, with the S&P 500 falling more than 15%.1 Tariffs created trade barriers by increasing the cost of imported goods, prompting companies to ramp up domestic production. In the U.S. economy, consumers are beginning to feel the pass-through of these costs in everyday expenses, contributing to economic slowdown and declining demand. Morgan Stanley economists predict that U.S. economic growth will slow from 2.8% in 2024 to 1.5% in 2025 and 1% in 2026.2 Intriguingly, corporate earnings reported in the first quarter of 2025 grew by approximately 13% year-over-year.3 Ultimately, a mix of both positive and negative data may help us better understand potential economic outcomes and, in turn, the impact on our portfolios.
In response, many investors were convinced that this time was “different.” Unfortunately, loss aversion often leads to imprudent decisions. The fear of further market decline, rather than focusing on a potential rebound, spooked some investors to sell their positions within their portfolio at a loss. This permanent loss could have been avoided had they waited just a few more weeks for the announcement of President Trump’s global tariffs. In 2024, the S&P 500 appreciated about 23%, following a 24% gain in 2023; however, a short-term market downturn led some investors to make premature investment decisions.1 Those who remained diversified and stayed the course ultimately reaped the benefits.
The stock market is not solely defined by American companies. Many economies around the world, both developed and emerging, contribute to the global market performance. While the U.S. stock market has shown relatively muted growth year-to-date, the same cannot be said for international markets. The Morgan Stanley Capital International Index for Europe, Australia, and Far Asia (MSCI EAFE NR USD), which tracks the performance of companies in these developed markets outside the U.S. and Canada, has appreciated by about 17% as of May 31, 2025.4 For emerging markets, which include countries such as China and Brazil, the MSCI EM NR USD has returned approximately 9% year-to-date.5 Ultimately, this signifies the importance of geographic diversification within an investment portfolio, as home-country bias can limit growth potential. While we are naturally inclined to favor our domestic markets, recent events illustrate the importance of being diversified beyond the U.S. stock market.
The performance of the global markets in 2025 has stressed the importance of geographical diversification. While U.S. markets stalled, international markets quietly shined. While home-country bias can be costly, the U.S. market performance over time still demonstrates the resilience of long-term investing. The troughs of market cycles often feel longer than the peaks, and fear can be persuasive, but staying committed to a well-diversified plan is essential.
Although the S&P 500 has recovered from its “Liberation Day” lows, the potential for disruptive market movements remains possible, dependent upon trade discussions and tariff threats. This point epitomizes the importance of remaining calm during periods of market distress and avoiding reactionary decisions. While investing is often viewed as a numbers-driven discipline, it is also deeply emotional. That’s why making prudent, well considered decisions is critical to long-term portfolio success. When emotions run high, your wealth advisor is here to help you take a step back, stay grounded, and avoid turning a temporary dip into permanent regret.
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Disclosures:
Apella Capital, LLC (“Apella”), DBA Apella Wealth is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered or excluded or exempt from registration requirements. Registration with the SEC or any state securities authority does not imply a certain level of skill or training. Please note the material is provided for educational and background use only. Moreover, you should not assume that any discussion or information contained in this material serves as the receipt of, or as a substitute for, personalized investment advice.
No current or future client should assume that any discussion or information contained in this material serves as the receipt of, or as a substitute for, personalized investment advice. As with any investment strategy, there is the possibility of profitability as well as loss.
Diversification seeks to reduce volatility by spreading your investment dollars into various asset classes to add balance to your portfolio. Using this methodology, however, does not guarantee a profit or protection from loss in a declining market.
Index Disclosure and Definitions:
All indexes have certain limitations. Investors cannot invest directly in an index. Indexes have no fees. Historical performance results for investment indexes generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the incurrence of which would have the effect of decreasing historical performance. Actual performance for client accounts may differ materially from the index portfolios. All data is from sources believed to be reliable but cannot be guaranteed or warranted.
S&P 500 Index represents the 500 leading U.S. companies, approximately 80% of the total U.S. market capitalization.
International – Developed represented by the Dow Jones Markets ex-U.S. Index is designed to measure 95% of the market capitalization of stocks traded in developing markets, excluding the U.S.
International – Emerging Markets represented by the Dow Jones Emerging Markets Index is designed to measure 95% of the market capitalization coverage of stocks traded in emerging markets.
MSCI EAFE Index is a market-capitalization weighted equity index that comprises companies from 21 developed markets within Europe, Australasia, and the Far East. It is designed to measure the equity market performance of developed markets outside the US & Canada. It is maintained by MSCI Inc., a provider of investment decision support tools. MSCI Inc., is formerly known as Morgan Stanley Capital International.
MSCI Emerging Markets Index (MSCI EM NR USD) captures large and mid-cap representation across Emerging Markets countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country. It is designed to track the financial performance of key companies in fast-growing nations. It is one of a number of indexes created and maintained by MSCI Inc., a provider of investment decision support tools. MSCI Inc., is formerly known as Morgan Stanley Capital International.