Bob’s Journal for 4/3

A Tough Start to 2025 for U.S. Stocks

Many investors wondered over the last few years when U.S. stocks would take a break from their exceptional returns and what would trigger the reversal.

Numerous events that would have caused a sell-off in the past didn’t knock U.S. stocks off track. It took a new administration introducing tariffs and general chaos to finally shake investors’ confidence in U.S. stocks.

In the first quarter of 2025, major U.S. stock indexes registered their worst returns since mid-2022.

The Nasdaq led the way with a 10.42% decline for the quarter. The S&P 500 dropped 4.59%, while the Russell 3000 fell 5.03%.

The Nasdaq 100 (QQQ) lost 8.14%. The ETF that invests in the 50 largest-capitalization S&P 500 stocks decreased 7.71%, while the ETF that invests in the Magnificent 7 stocks (MAGS) fell 15.73%.

But the first quarter wasn’t bad news for all stocks. The equal-weighted S&P 500 (RSP) lost only 0.67% in the first quarter.

Also, seven of the 11 sectors of the S&P 500 had positive returns in the first quarter. The losers were consumer discretionary, industrials (down only 0.22%), technology and communications services (down only 0.08%). (But only two sectors were positive in March.)

Smaller capitalization companies were dragged lower by the market pessimism. Vanguard Small Cap Value (VBR) dropped 5.38%, and iShares Russell 2000 (IWM) fell 9.51%.

The drop in stock prices was concentrated in the United States.

European stocks increased 8.09%, as measured by the iShares MSCI EAFE (EFA). The iShares MSCI All World Index ex-U.S.(ACWX) rose 6.31%.

The broad emerging market index (EEM) gained 4.50% for the quarter. Asian stocks (IPAC) advanced 1.87%, and Latin American equities returned 12.63%. China’s large company stocks (FXI) rose 17.74%.

I’ve been saying that I fear recent changes in U.S. economic and foreign relations policies will hurt the dollar. So far that’s been the case, with the dollar declining 2.99% in the first quarter.

Of course, stocks are not the entire investing universe.

Bitcoin had a great 2024, rising about 100%. But it has fallen along with the major growth stocks in 2025, losing 11.80% in the first quarter.

Gold, on the other hand, continues to hit record highs, rising 19.09% in the first quarter.

U.S. bonds were up and down during the quarter. But long-term treasuries (TLT) finished the quarter with a 4.93% gain. The broader-based U.S. bond aggregate index (AGG) advanced 2.74%.

One of our investing tenets is to always have some diversification and balance. We don’t want to assume that a particular investment environment or trend will continue indefinitely.

We know from experience that changes in a trend or environment can happen quickly. Markets don’t like uncertainty, so it’s the surprising, sudden news or events that move markets.

In 2025, investors clearly didn’t anticipate tariffs to be emphasized as much as they have been. They also didn’t anticipate other major changes in policy.

Surprises increased uncertainty and fears of a recession. Investors are recalibrating valuations and growth prospects, and that’s moving money out of U.S. large company stocks and into other markets.

How to Reverse Some Gifts to Children

Parents often want to help children financially, as do many grandparents, and some start doing so when the children are young.

Of course, gifts can’t be made directly to young children. Many parents set money aside in accounts designated for gifts to children under the Uniform Transfers to Minors Act (UTMA).

All 50 states have UTMA laws. Many states also have Uniform Gifts to Minors Act (UGMA) laws. UTMAs essentially have replaced UGMAs, because UTMAs are allowed to own a broader range of assets. Most brokers and other financial services companies offer both types of accounts or refer to them jointly as custodial accounts.

I’ve raised cautions about UTMAs in the past.

UTMAs have the advantage of putting assets in a child’s name while allowing the parents to control the accounts as long as the child is a minor.

A custodial account shifts investment income to the child’s income tax return where it is taxed at the child’s lower tax rate. That can be an advantage until the child has enough income to trigger the Kiddie Tax, which taxes the higher income at the parents’ top tax rate.

The major potential disadvantage of the UTMA is that the child has full legal authority over the account after reaching a certain age. The custodian (such as a brokerage firm) is required by law to transfer the account to the child’s name at that point.

Most states recognize 18 as the age or majority but limit access to a UTMA until the child reaches 21. An UGMA often becomes the child’s at 18. Find when a child gains control of an UTMA in your state at www.finaid.org.

As a child becomes older, a parent or grandparent who funded an account when the child was very young might become concerned that the money won’t be spent or invested wisely.

Parents and grandparents can’t simply reclaim money they transferred to a UTMA for a child. The money has to be spent for the child’s benefit.

The problem can be avoided by initially putting the money in a trust instead of an UTMA, but a trust can be expensive to set up and inconvenient to administer.

A 529 college savings plan can be a better alternative than a trust or an UTMA. The adult who creates and funds the account retains control over the money. The account owner can even take back the money, though taxes and penalties might be incurred.

What about cases when a parent or grandparent already put money in an UTMA for a child and now believes the child won’t attend college and will spend the account foolishly?

It might be possible to transfer an existing UTMA into a 529 UTMA. These limit spending to educational purposes, even after the child acquires title to it. A 529 UTMA also might encourage the child to attend college or pursue some other education or training opportunity.

Another alternative is for the parents to spend down the UTMA before the child has control of it.

A UTMA can’t be spent on necessities that are the parents’ legal support obligations for the child. In most states, legal support includes items such as housing, clothing, food and medical care.

But the UTMA can be spent on other things for the child that aren’t legal support obligations. These can include a wide range of expenses that the parents were planning to provide.

Nonsupport expenses can include vacations, summer camps, tutoring and purchasing a vehicle for the youngster.

There are several strategies available to set money aside for a youngster. There also are strategies for adults who put money into an account for a child and decide that wasn’t the best decision.

Warning Signs in Latest Employment Reports

The headline numbers from the latest employment reports seem fine. But the details indicate the labor markets might be weakening and we need to be concerned about a decline in economic growth.

While the unemployment rate hasn’t changed much, several key indicators have negative trends.

Unemployment among white collar workers is rising more rapidly than for other workers. This likely is the result of both artificial intelligence and other productivity measures, plus employers generally looking for ways to reduce expenses and maintain profit margins in the face of cost increases.

The increase in white collar unemployment suggests that layoffs have increased in recent months, though that hasn’t captured headlines.

Also, the youth (ages 20-24) unemployment rate has increased from 7.5% in December to 8.3% in the latest report. Youth unemployment often is an early sign of recession, because employers worried about downturns first stop hiring inexperienced workers and lay off existing young workers.

Involuntary part-time work also has increased substantially. Involuntary part-time workers are people who want to work full-time but either can’t find full-time jobs or are given reduced hours by their employers.

A classic move by employers worried about slower growth is to increase part-time work and reduce the number of full-time positions.

The monthly JOLTS (Job Openings and Labor Turnover Survey) reports have shown a fairly steady decrease in the number of job openings in the economy.

An increase in unfilled jobs indicates employers can’t hire as many qualified workers as they’d like. It’s a sign of a growing economy and tight labor market. A decline in the number of job openings often is a sign employers are experiencing or anticipate reduced demand.

In addition to the hard data, surveys indicate the labor market is softening.

Consumer surveys indicate more people are concerned about losing their jobs. Employer surveys disclose that fewer employers plan to increase payrolls.

The numbers don’t indicate a recession is imminent. They could mean we’re in one of those short-term dips in the economy that is followed by higher growth. But it does appear that both businesses and households are being cautious while they wait to see how the recent policy changes affect the economy.

The Data

The Consumer Sentiment Index from the University of Michigan fell to 57.0 at the end of March from 57.9 in mid-March and 64.7 at the end of February.

March is the third consecutive month the index declined, and the March level is the lowest since November 2022.

Consumer assessments of current conditions increased a little during the month. But expectations for the next 12 months declined to their lowest level since July 2022.

The percentage of consumers expecting unemployment to increase over the next 12 months was the highest since 2009.

Personal income increased 0.8% in February, the highest rate in more than a year, following a 0.7% rise in January. There were strong increases in income from both compensation and investments.

Personal spending in February increased 0.4% after declining 0.3% in January. Spending increased for both goods and services.

The Personal Consumption Expenditure (PCE) Index increased 0.3% in February, the same as in January. The 12-month increase in the index was 2.5% through both February and January.

The core PCE Price Index, the Fed’s preferred measure of inflation, rose 0.4% in February, up from 0.3% in January. Over 12 months, the core PCE Price Index increased 2.8% through February and 2.7% through January.

The ISM Manufacturing Index fell to 49.0 in March from 50.3 in February. The index has been below 50.0, indicating the sector is contracting, every month since October 2022 except one.

The PMI Manufacturing Index fell to 50.2 in March from 52.7 in February.

The Kansas City Fed Manufacturing Index increased to 1 in March from negative 13 in February. This is only the second positive reading of the index over the last 12 months. Manufacturing of nondurable goods, such as paper and food, has been the major drag on the index.

The Dallas Fed Manufacturing Index fell to negative 16.3 in March from negative 8.3 in February.

Factory orders increased 0.6% in February following a 1.8% rise in January.

A proxy for business investment is factory orders minus transportation orders. This measure increased 0.4% in February, an improvement from the 0.3% increase in January.

Pending home sales increased 2.0% in February, the first rise in three months, following a 4.6% decline in January.

Most of the increase was in the South, where pending sales rose 6.2%.

Pending home sales in February were 3.6% lower than 12 months earlier after being down 5.2% over 12 months in January.

Gross Domestic Product (GDP) grew at a 2.4% annualized rate in the fourth quarter of 2024, according to the final estimate. That’s down from 3.1% in the third quarter but slightly higher than the 2.3% rate in the previous estimate.

The biggest driver of GDP growth in the fourth quarter was personal consumption, which increased at a 4.0% rate, the highest since the first quarter of 2023.

There were 155,000 private sector jobs created in March, according to the ADP Employment Report. That’s an increase from the 84,000 jobs created in February.

The number of new job openings declined by 61,000 in February to 3.195 million, according to the JOLTS (Job Openings and Labor Turnover Survey) report. Job openings are down 273,000 over the last 12 months.

The percentage of people quitting jobs, known as the quits rate, has stayed steady around 2.0%. Economists believe an increase in the quits rate indicates the labor market is strong, because workers are confident they can leave current jobs for better jobs.

New unemployment claims fell by 1,000 to 224,000 in the latest week.

Continuing claims, which lag a week behind new claims, decreased to 1.856 million from 1.881 million.

The Markets

The S&P 500 lost 2.52% for the week ended with Tuesday’s close. The Dow Jones Industrial Average fell 1.46%. The Russell 2000 declined 3.94%. The All-Country World Index (excluding U.S. stocks) decreased 2.37%. Emerging market equities retreated 1.81%.

Long-term treasuries gained 2.29% for the week. Investment-grade bonds increased 0.62%. Treasury Inflation-Protected Securities (TIPS) added 1.05%. High-yield bonds fell 0.43%.

On the currency front, the U.S. dollar rose 0.18%.

Energy-based commodities increased 1.38%. Broader-based commodities rose 1.53%. Gold advanced 3.28%.

Bob’s News & Updates

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