The Market Measure: April 2025

How did S&P DJI’s indices perform in Q1? Why is Low Volatility attracting interest, and what else is navigating the trade trends successfully? Explore the highlights with The Market Measure.

Meet The Market Measure - a new video series providing fresh perspectives on markets through the lens of indices. Each month, get access to insights across geographies, asset classes and investment strategies.

To make sure you never miss an episode, sign up for content alerts.

[TRANSCRIPT]

Ben Vörös:

Hello, I’m Ben Voros

Dasha Selivanova:

and I’m Dasha Selivanova,

Ben Vörös, Dasha Selivanova:

and this is The Market Measure.

Ben Vörös:

The year started well for U.S. equities, with the S&P 500 hitting record highs on February 19th. Just 16 trading days later, it fell into correction, falling 10%, as VIX spiked to its highest level since last August. Overall, the S&P 500 ended Q1 down 4.3%. The U.S. bellwether had its worst quarter since 2022, driven by some of last year's top performers. Mega-caps struggled, with the S&P 500 Top 10 down 12%. The top three sectors from last year, Discretionary, I.T. and Communication Services, were the worst in the first quarter, down 14%, 13% and 6%, respectively. There was no turnaround, however, in the relative performance of mid-caps and small-caps, having both lagged the S&P 500 last year. They continued to do so in Q1, with the S&P Midcap 400 and S&P SmallCap 600 down 6% and 9%, respectively. Meanwhile, the venerable Dow Transportation, the world's oldest equity benchmark and still taken by some as a leading indicator for the domestic economy, dropped 7% in Q1.

This year, U.S. equities trailed the rest of the world, in some cases by historic margins. The S&P 500 lagged the S&P Europe 350 by 15% in Q1, the largest gap in any quarter this century. A silver lining was the potential for good stock selections in Q1. 62% of S&P 500 constituents outperformed the index, making it easier for active managers to beat the benchmark, a shift from last year, when 72% underperformed. What might be a bigger change in trends is illustrated by the relative performance of U.S. equities.

This map shows global equities’ year-to-date performance, with darker blue and yellow corresponding to more positive and negative returns, respectively. Notice the concentration of dark blue in Europe. The S&P Europe 350 index is up 11% in U.S. dollars, partly due to expected increases in infrastructure and defense spending. Investors anticipate defense stocks will benefit, as shown here by an index of aerospace and defense companies in developed markets, which is up 14% year to date, 21% over the last year and 49% since inception in November 2023.

So what else is up? There were bright spots to be found, even in U.S. equities, like the S&P 500 Low Volatility Index, which returned 7% in Q1.

Dasha Selivanova:

The Low Volatility Index belongs to a family of defensive equity factors, which may provide a degree of protection during falling markets and participation in rising markets. Here is the Low Volatility Index’s average post-launch quarterly performance. In quarters when the S&P 500 was up, it was up an average 6.4%, and Low Vol was up 5.6% on average. That's an 87% “Capture Ratio,” or proportion of participation in index gains.

When the S&P 500 fell, it averaged a 7.8% drop, while Low Vol declined only 3.9% on average, achieving a capture ratio of half the decline. This feature, a high capture ratio of upside returns compared to downside returns, is one of the reasons that the S&P 500 Low Volatility Index has attracted interest from market participants. What makes Low Volatility’s performance unique in Q1 2025 is that it rose in a period when the S&P 500 fell. This happened previously, just once in the 56 quarters since the index's launch.

Low Volatility’s Q1 performance was partly due to its sector weights, with more exposure to better-performing sectors like Financials, Utilities, Industrials and Real Estate. For more details, check S&P DJI’s S&P 500 Factor Dashboard on our website.

Dasha Selivanova:

At S&P Dow Jones Indices, we measure the markets.

Ben Vörös:

And this was The Market Measure.

---