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  • Market Commentary

2024’s Hot Stocks Have Cooled Fast + 4.23.25

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Josh Jenkins, CFA, Chief Investment Officer, Principal
April 22, 2025
2024’s Hot Stocks Have Cooled Fast + 4.23.25

A handful of tech giants stole the show in 2024. Just a few months into the new year, they’ve fallen hard, and their stumble is a powerful reminder of why investors shouldn’t put all their eggs in one basket.

Commonly referred to as the ‘Magnificent 7,’ the group includes household names like Apple, Microsoft, Meta (Facebook), NVIDIA, Tesla, Amazon and Alphabet (Google). By the end of the year, they comprised the largest holdings in the S&P 500 Index, a popular representation of large-cap stocks in the U.S. While the index left other asset classes in the dust with a 25% return last year, it was the Magnificent 7 that led the charge with a staggering 48.3% gain.

Given how well these stocks have done, why would investors bother owning anything else? The answer is that while piling into the recent top performers can be alluring, such a strategy carries elevated risk. We have seen a clear example of this risk in 2025. U.S. stocks have been under pressure as the market navigates the uncertainties related to the newly announced tariff regime. The Mag 7 stocks have been under particularly severe pressure so far in 2025. As the chart below highlights, these companies, on average, are down -27.8% year-to-date, compared to a decline of just -11.9% for the broader S&P 500 Index.

1-Apr-22-2025-09-02-42-1907-PM

Source: Morningstar Direct. Returns are year-to-date as of 4/21/2025 and include dividends.

The above chart demonstrates the value of diversification. Owning a broad basket of stocks typically results in a dampening of the exaggerated swings that can occur in individual companies. The large number of stocks in the S&P 500 Index shown above have collectively been less volatile and delivered a smaller loss than the Mag 7 stocks this year.

Of course, a diversified investor still owns the Mag 7 stocks. That is the beauty of the approach. Last year when those companies were on a tear, diversified investors participated. Performance would have lagged an investor that was highly concentrated, but that’s ok. This year, the downside is mitigated, and the diversified investor isn’t constantly faced with the decision of whether it’s time to own different stocks. 

One thing many investors don’t fully appreciate is that owning an S&P 500 Index fund is still a fairly concentrated position. Even though the index holds hundreds of stocks, it’s not fully diversified. That’s because it only includes large U.S. companies, which is just one slice of the broader investment universe. Stocks in the same category often move together, which limits how much diversification can smooth out the ebb and flow in prices.

To take diversification a step further, investors can look beyond U.S. large-cap stocks by incorporating additional asset classes. International stocks, bonds, and cash each respond differently to market forces, offering unique benefits. The chart below highlights how these different asset classes have performed this year.

2-Apr-22-2025-09-02-42-1907-PM

Source: Morningstar Direct as of 4/21/2025. The May 7 Average return is based on a simple average of the 7 constituents. International stocks were represented by the MSCI ACWI Ex US TR Index. Bonds were represented by the Bloomberg U.S. Aggregate Bond Index, and cash was represented by the Bloomberg Treasury Bill 1-3m Index.

A simple portfolio balanced across these options, as outlined below, would have reduced portfolio volatility and brought the drawdown to a mere -3.0%. That is a notable improvement over the S&P 500 and a substantial one relative to the Magnificent 7 allocation.

Example Balanced Portfolio Weights:

  • 39% S&P 500 Index
  • 21% International Stocks
  • 39% Bonds
  •   1% Cash 

A key thing to understand is that while diversification can deliver a substantial benefit to investors, it comes at a cost. Or, more accurately, an opportunity cost. By design, a diversified portfolio is guaranteed to underperform its top-performing asset(s). From time to time, a small subset of holdings can dramatically outperform other asset classes for an extended period. When this occurs, the opportunity cost can feel like a high price to pay. In those moments, it’s easy to forget why we diversify. Bouts of heavy volatility like we have experienced this year serve as a reminder.

With a diversified portfolio, investors don’t have to play the loser’s game of picking individual stocks. Broad exposure ensures the winners are represented within the portfolio. Importantly, the relatively smoother ride of a diversified portfolio makes it easier for an investor to remain in their seat when a bump in the road feels like a roller coaster.  


Week in Review

  • The Bureau of Labor Statistics (BLS) released its March Consumer Price Index (CPI) report, offering fresh insight into the Federal Reserve's progress on curbing inflation. The headline CPI declined by 0.1% month-over-month, the first monthly drop in consumer prices since 2020, while rising 2.4% year-over-year. Meanwhile, Core CPI, which excludes the more volatile food and energy categories, edged up 0.1% for the month and 2.8% compared to a year ago. Looking ahead, market participants will be closely monitoring upcoming CPI releases, as economists expect the April or May reports to be the first to reflect the impact of new tariffs.
  • Initial jobless claims in the U.S. fell by 9,000 to 215,000 for the week ending April 17th, marking the eighth consecutive week that filings have remained at or below 226,000. This sustained level of relatively low claims underscores continued resilience in the labor market, as figures below 300,000 are generally considered indicative of a healthy economy.
  • The spring home-building season is off to a rough start, with housing starts (a key indicator of new residential construction) plunging 11.4% in March from the previous month. This marks the steepest month-over-month decline in the past year as elevated mortgage rates and high home prices continue to weigh heavily on both new construction and existing home sales.

Hot Reads

Markets 

  • U.S. Payrolls Rose By 228,000 in March, But Unemployment Rate Increases to 4.2% (CNBC)
  • Oaktree’s Howard Marks on the Trump Administration’s Tariff Policy – Bloomberg (YouTube)
  • China to Impose 34% Retaliatory Tariff On All Goods Imported from the U.S. (CNBC)

Investing 

  • The Economic Playbook Has Been Shredded. Here Are Your Next Investing Moves (Jason Zweig)
  • How Bad Could This Get (Ben Carlson)
  • Q1’s Biggest Lesson for Investors: Diversification Works (Morningstar)

 Other 

  • Tune Out the Noise – DFA Documentary (YouTube)
  • How the World’s Largest Underwater Tunnel is Being Built – BBC News (YouTube)
  • Inside Dachau: Hollywood’s Darkest Footage – Uncensored (YouTube)

Markets at a Glance

3-Apr-22-2025-09-02-42-2241-PM

4-Apr-22-2025-09-02-42-1856-PM

5-Apr-22-2025-09-02-42-1820-PM

Source: Morningstar Direct.

6-Apr-22-2025-09-02-42-1629-PM

Source: Morningstar Direct.

7-Apr-22-2025-09-02-42-1625-PM

Source: Treasury.gov

8-Apr-22-2025-09-02-42-1571-PM

Source: Treasury.gov

9-Apr-22-2025-09-02-42-1449-PM

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

10-Apr-22-2025-09-02-42-1435-PM

Source: FRED Database & ICE Benchmark Administration Limited (IBA)



Economic Calendar

11-Apr-22-2025-09-02-42-1432-PM
12-Apr-22-2025-09-02-42-1133-PM

Source: MarketWatch

IMPORTANT DISCLOSURE INFORMATION

  • Competition, Achiever, Relator, Analytical, Ideation

Josh Jenkins, CFA

Chief Investment Officer, Principal

Josh Jenkins, Chief Investment Officer, began his career in 2010. With a background in investment analysis and portfolio management from his previous roles, he quickly advanced to his current leadership position. As a member of the Lutz Financial Board and Chair of the Investment Committee, he guides Lutz Financial’s investment strategy and helps to manage day-to-day operations. 

Leading the investment team, Josh directs research initiatives, while overseeing asset allocation, fund selection, portfolio management, and trading. He authors the weekly Financial Market Update, providing clients with timely insights on market conditions and economic trends. Josh values the analytical nature of his work and the opportunity to collaborate with talented colleagues while continuously expanding his knowledge of the financial markets. 

 

At Lutz, Josh exemplifies the firm’s commitment to maintaining discipline and helping clients navigate market uncertainties with confidence. While staying true to the systematic investment process, he works to keep clients' long-term financial goals at the center of his decision-making. 

 

Josh lives in Omaha, NE. Outside the office, he likes to stay active, travel, and play golf. 

402.763.2967

jjenkins@lutz.us

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