Newsletter | April 2025 | Market Volatility is not the Enemy - Fear is.

Embracing the Chaos

As a dedicated reader of our newsletter, you may recall that in November 2024 we wrote about the Two Years of a Raging Bull Market, during which major indices such as the Nasdaq, S&P 500, and FTSE/JSE Listed Property Index delivered cumulative returns of 80%, 60%, and 66% in rands, respectively. That remarkable run now appears to have paused, with significant volatility in the market over the past three to four months. Since the peak of the equity market in mid-February, the S&P 500 has declined by 9.4%, the Nasdaq by 13.8% and the MSCI World Index by 7.7% – all in rands.  

While these numbers may seem substantial, long-term investors should always assess them in relative terms. Reflecting on our ‘Bull Run’ note, the chart below is striking. Yes, markets have pulled back, but in the context of the past 30 months, this underperformance has been relatively minor. For instance, the Nasdaq gained 97% in total returns from September 2022 to February 2025, and despite the recent 14% decline, it remains significantly higher overall. The other indices show even smaller negative returns, reinforcing the importance of maintaining a long-term perspective.

The Market Rollercoaster – What Triggered It?

When the stock market makes headlines, investors often react impulsively, sometimes panicking over limited information available at the time. In this instance of market volatility, one or two key catalysts have triggered the sell-offs. The United States imposed tariffs on imports from Canada and Mexico while also increasing tariffs on Chinese goods from 10% to 20%, prompting immediate retaliatory measures from these countries. 

The list of affected nations was later expanded, as President Trump remained committed to his "America First" policies. These actions sparked significant volatility across global markets. Additionally, concerns were exacerbated by a slowdown in US GDP growth, with the fourth quarter expanding by 2.5%, down from 2.7% in the previous period.

Flight to Safe-Haven Assets

The rationale behind the market sell-off following increased tariffs, is that tariffs function as a tax on imported goods, raising production costs for companies’ dependent on global supply chains. Higher costs, in turn, reduce profit margins, making stocks less attractive to investors. Additionally, there is the risk of retaliatory measures, as seen in recent trade disputes, leading to possible trade disruptions, supply chain uncertainty, and the potential for lower corporate earnings.

The US stock market, particularly the information technology and energy sectors, has been flashing signs of "high valuations" for some time, with growth stocks experiencing an exceptional run that has made them appear increasingly expensive. During a sell-off, investors typically offload overvalued sectors first, which explains why the Nasdaq and US-heavy indices have experienced sharper declines. 

In times of market turmoil, investors often shift funds away from equities into safer assets such as gold, bonds, or cash, further driving down stock prices. This shift is evident in the performance of precious metals, with gold maintaining its upward trajectory from 2024 and breaching multiple all-time highs. The metal ended the period at US$3 120.5 per ounce, an 18.9% increase since the beginning of the year. Notably, gold was priced at US$1 641 in October 2022 and has been on an unstoppable rise ever since.

Winners Stay the Course: Volatility as an Opportunity

Market volatility often unsettles investors, but history demonstrates that those who remain steadfast tend to emerge stronger. Short-term price fluctuations may create uncertainty, yet they also offer opportunities for disciplined investors to acquire quality assets at discounted valuations. Volatility is an inherent characteristic of equity markets, influenced by economic cycles, policy shifts, and investor sentiment. Rather than reacting emotionally to market turbulence, successful investors treat pullbacks as strategic entry points to reinforce their portfolios.

Amid the "safe haven" appeal of gold and its ongoing rally, the FTSE/JSE Resource Index has delivered an exceptional performance in 2025, surging by 33.7% for the year. This impressive gain is largely driven by the index’s 50% exposure to gold stocks, which have benefitted from heightened demand for defensive assets.  

Markets in March

In rand terms, the Nasdaq Index declined by 8.5% for the month, while the MSCI World Index fell by 5.4% and the S&P 500 Index dropped by 6.6%. In contrast, the MSCI China Index posted a modest gain of 1.0%, while the MSCI India Index rebounded strongly, returning 8.3%. The broader MSCI Emerging Markets Index saw a slight decline of 0.3%. Meanwhile, the MSCI UK Index and MSCI Euro Index slowed, recording negative returns of 0.3% and 1.3%, respectively.

Locally, Resource stocks continued their strong performance, delivering an impressive return of 20.9% for the month. Industrials declined by 0.5%, while Financials edged up by 0.2%. Property was down 0.9%, and Bonds recorded a modest gain of 0.2%. The FTSE/JSE All Share Index closed the month up 3.6%, while the rand appreciated by 1.0%, ending at R18.39 to the US dollar.

A Long-Term Investor’s Perspective

Staying invested through periods of uncertainty allows investors to benefit from long-term compounding and the market’s natural tendency to recover and grow. In the end, those who remain focused on their strategy – rather than short-term noise – position themselves to emerge as winners when stability returns. As an investor, your long-term investment strategy must not be obstructed by fear. 

Disclosure

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