Earlier this week, Marquette published a newsletter detailing the ongoing market volatility caused by the Trump administration’s recent tariff rollout. Indeed, equity markets have reacted sharply to the new trade landscape, with the S&P 500 Index having fallen roughly 11.0% from its February peak as of this writing. While a significant portion of these losses came late last week, this week has seen even more extreme market fluctuations as investors struggled to assess the impact of new trade restrictions on security prices and the global economy. Specifically, the S&P 500 Index opened lower on Monday morning before surging amid rumors that the White House was considering a pause on its reciprocal tariff measures. The Trump administration quickly denied these rumors, and the benchmark would later turn negative before ending the day slightly up from its prior close. Markets opened sharply higher yesterday but steadily lost ground due to souring sentiment and a lack of progress on trade negotiations. Today, equity markets opened slightly lower before skyrocketing after an official announcement of a 90-day pause for reciprocal tariffs on non-retaliating countries. All told, Monday, yesterday, and today saw staggering intra-day price changes in the S&P 500 Index of roughly 8.5%, 7.3%, and 10.8%, respectively (in absolute value terms).

As this week’s chart indicates, price swings of this magnitude have only been exhibited during the most extreme periods in U.S. equity market history, including the Black Monday Crash of 1987 and the Global Financial Crisis. As such, it is imperative that investors navigate the current environment with a high degree of prudence and caution, especially given the likelihood of continued volatility as trade negotiations proceed. It is also helpful to remember that investors have historically been well compensated for bearing equity risk over multi-year periods, and that short-term fluctuations are the price of positive long-term returns. Marquette continues to closely monitor dynamics within global markets and will provide timely updates accordingly. Please reach out to us with any questions.

Entering 2025, investors were overwhelmingly bullish on the outlook for U.S. equities. Positive sentiment was fueled by the perceived benefits of the incoming administration, specifically the likelihood for pro-business policies and looser regulation. These expectations drove the Russell 2000 and NASDAQ to fresh all-time highs post-election, although some of this exuberance was dampened following a more hawkish tone from the Federal Reserve in mid-December. Since his inauguration, Trump has been outspoken on tariffs and government spending, but the gravity of these measures, compounded by inconsistent implementation, has led to market uncertainty. As a result, the VIX, a measure of market volatility, reached a post-election high on March 10.

Concurrent with the spike in volatility, segments of the U.S. equity market have fallen into correction territory, defined as a decline greater than 10% from recent highs. Small-cap equities, as measured by the Russell 2000, have declined almost 17% from their high in November 2024. Small-cap equities are more economically sensitive, but underperformance has been compounded by depressed earnings. Large-cap equities, as measured by the S&P 500, achieved a new all-time high in February, but have flirted with correction territory in March, down over 9%. A shift in investor sentiment continues to weigh on U.S. equities as Trump acknowledged the potential for further volatility without ruling out the possibility of a recession. Additionally, the market darlings of the past two years, the Magnificent 7, have not been immune to market volatility, as rich valuations may make these companies more susceptible in a market pullback. This cohort of companies has declined 20% since an all-time high in December 2024, as companies like Tesla have erased all of their post-election gains.

Expectations for the U.S. equity market have fallen short thus far in 2025. As the new administration navigates the path forward, the impacts of policy decisions on the economy remain uncertain, so volatility may persist. Although volatility can be painful and is likely to continue, a disciplined and diversified approach that focuses on long-term performance is still the best recipe for portfolio success.

By now, readers likely know that large-cap equities propelled the U.S. equity market higher in 2023 and 2024, as the S&P 500 Index advanced over 20% in each of those years. Although positive performance continued for U.S. stocks to begin 2025, the often-overlooked mid-cap space ultimately led the way, with the Russell Midcap Index gaining 4.3% in January. This figure was higher than both the 3.2% and 2.6% returns notched by the Russell 1000 Index and Russell 2000 Index, respectively, during the month. Commonly underrepresented in investor portfolios, mid-cap indices provide exposure to more established business models than small-cap benchmarks but also offer potential exposure to companies growing at a faster rate than those within the large-cap universe.

As it relates to recent performance drivers, mid-cap equities were buoyed by the January CPI print, which led to a broadening out of markets. The space also benefited on a relative basis as mega-cap technology stalwarts sold off due to rhetoric surrounding trade restrictions and AI competition from China. While market concentration issues related to these mega-cap companies are a belabored topic, the theme of concentration is not isolated to the large-cap space. To that point, just two companies in the Russell Midcap Growth Index (Palantir and AppLovin) accounted for nearly 30% of the return of that benchmark last year. As of the end of last month, these two companies comprise more than 8% of the index and, with market capitalizations above $100 billion, are now outside of the typical range used to delineate the mid-cap space. Since these and similar dynamics have plagued indices across the equity spectrum, Russell will implement a second rebalance in November based on market capitalization beginning next year. This rebalance will help ensure the Russell indices provide an accurate representation of their respective asset classes and have the potential to combat historic levels of concentration. As index construction evolves, it is prudent for investors to construct diversified equity portfolios to balance the risks and rewards of each asset class.