As the clocks spring forward and daylight lingers longer, we’re delighted to welcome a fresh new season. The first quarter of 2025 brought its share of market ripples, with tariff talk and policy shifts stirring some unease. The S&P 500 eased into a modest correction, down 4.27% for the quarter after peaking in February, a pullback that’s hardly alarming after two years of double-digit gains. While high-flying U.S. tech giants, such as the ‘Magnificent 7,’ faced sharper pullbacks as valuations adjusted, our portfolios have remained resilient, outperforming many benchmarks. Our emphasis on quality and diversification means we’re not relying on any single outcome, but rather positioning you for long-term growth, which allows us to keep short-term factors in perspective.
While the ‘Magnificent 7’ stocks have officially entered a Bear Market, declining over 20% from their peak, this pullback was anticipated given their lofty valuations. This correction simply reflects a return to more realistic levels, setting the stage for a healthier market foundation moving forward.
Looking beyond the headlines, the broader market tells a more encouraging story. The majority of S&P 500 sectors posted gains this quarter, with resilient performers such as healthcare and consumer staples leading the way, alongside a revitalized financials sector.
Across the Atlantic, European stocks have emerged as the standout performers among developed markets in 2025, delivering impressive double-digit returns year-to-date. Goldman Sachs highlighted that “European stocks rallied in Q1 2025, fueled by robust Q4 2024 corporate earnings and surge in defense spending.” Within this vibrant market, one of our portfolio companies, SAP, has risen to become Europe’s largest company, overtaking another of our holdings, Novo Nordisk—a testament to the strength and potential within our European investments.
At Cardinal Capital, we tune out the political clamor that so often dominates headlines. Mixing politics with investing can cloud judgment and disrupt discipline —a timeless pitfall we strive to avoid. The market doesn’t care how you vote, and neither do stock prices, which dance to a complex tune of inflation, interest rates, global events, and countless other factors, many of which are beyond our control. Our approach is simpler and steadier: we seek out strong companies at attractive prices, ignoring the whip-saw of daily events. If a holding stumbles, we study it and either replace it with a better opportunity or add more at a discount. This strategy delivers consistent growth with less volatility, allowing our portfolios to compound capital over the long term. Timing the market’s twists and turns is a tricky pursuit; staying diversified and disciplined is the surer path to long-term success.
Bond yields remain attractive, delivering solid returns for investors, while the companies behind these bonds stay financially sound. Defaults—where companies fail to repay their debts—are rare, and new bond offerings are experiencing robust demand. Together, this creates a favorable climate for bonds, reinforcing their role as a dependable and steady cornerstone in your portfolio.
Here’s hoping you’re enjoying some moments of sunshine, and we’re sending good wishes, as always, from the Cardinal team.
