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During the first quarter of 2025, the LOM Balanced Fund fell 2.14% as markets as markets braced for U.S. tariff uncertainty in the second half of the quarter. Over the past five years, the fund has provided an average return of 11.79% annually.
US government policy uncertainty led to downward revisions in growth forecasts. The OECD projected that escalating U.S. tariffs would slow global economic growth and increase inflationary pressures. Specific concerns were raised about the potential for these trade barriers to reduce global output and diminish household incomes, with possible retaliatory measures further exacerbating the situation. In the U.S. Federal Reserve Chair Jerome Powell announced a downward revision of U.S. GDP growth from 2.1% to 1.7%, signaling a slowdown in economic momentum. At the same time, the Fed raised its inflation forecast, reinforcing expectations of prolonged restrictive monetary policy to curb price pressures.
US equities faced headwinds in Q1, with the S&P 500 declining -4.3%, marking its worst quarterly performance since Q3 2022. The quarter began strongly, driven by large cap growth stocks holding near cycle highs until mid-February, the S&P 500 index hit a new record high as of February 19th. However, a sharp reversal occurred in the second half due to Policy uncertainty, Federal reserve caution, and Geopolitical risks.
A broad rotation from growth to value stocks occurred, with the equal weighted S&P 500 returning -0.61% outperforming the market weighted S&P 500 Index. This reflected investor shifts toward undervalued sectors and away from mega-cap stocks, which had dominated earlier gains. 7 out of 11 large cap GICS sectors ended Q1 positively, with Investors favoring defensive sectors like Energy, Healthcare and Consumer Staples which returned 10.2%, 6.5% and 5.2% respectively.
In fixed income markets, risk volatility created a compression along the Treasury curve, the 10-year yield fell from 4.58% to 4.20%, with roughly 40-basis-point tightening on any maturity over 2 years. The expectation entering the quarter was for under two federal fund rate cuts through the year as the market has increased the potential chance of second half economic slowdown due to tariff impacts. Now, this expectation has risen to three, resulting in an anticipated target range of 3.75% – 4.00% by year end. At quarter end, the Fund was allocated approximately 66.7% to equities, 28.1% to fixed income securities and 5.2% in cash and equivalents.
The information contained in this article is for information purposes only, and represent the views of the author. It is not intended as specific investment or financial advice, or a recommendation or solicitation to buy or sell any security. Any investments or strategies listed in this article may not be suitable for all investors. Past performance is not indicative of future performance, and as with any investment, prices may fluctuate. It is recommended that advice is sought from a qualified investment professional prior to implementing any financial plan. LOM has made every effort to ensure that the contents herein have been compiled from sources believed reliable, however LOM does not warrant the accuracy, adequacy, timeliness, or completeness of this information expressly disclaims liability for errors or omissions in this information.
