The Boyar Value Group’s Q1 2025 Letter

“We will catch more and bigger fish if we fish in

waters less fished in by others.” – Edgar Wachenheim III

Trees Don’t Grow to the Sky

The first quarter of 2025 reminded investors that markets don’t move in straight lines. After notching a record high on February 19th, the S&P 500 closed the quarter down 4.6%—its worst performance since 3Q2022. Most of the damage came from last year’s highflyers: shares of the so-called “Magnificent Seven” fell nearly 15% on average and were off 21% from their December 2024 peak. Meanwhile, the rest of the S&P 500 managed a modest 0.4% gain during the quarter. After years of widening performance gaps between mega-cap tech and everything else, the rubber band finally began to snap back—albeit not in the way investors might have hoped!

While there’s rarely a single cause behind a market pullback, the recent selloff can largely be traced to renewed growth fears—spurred in part by President Trump’s tariff threats and policy uncertainty. Hawkish Fed commentary and cracks in the AI narrative—fueled by the emergence of Chinese LLM rival DeepSeek— didn’t help either. The result? Multiple compression.

Nvidia’s (NVDA) multiple dropped from 53x trailing earnings (as of April 17^th) to 35x while Tesla’s (TSLA) went from 198x to 118x. As of the end of the first quarter, the top 10 stocks in the S&P 500 now trade at 24.4x (fwd.) earnings on average—still well above their 20.6x historical average—compared to 18.3x for the rest of the index. The S&P 500 as a whole sits at 20.2x forward earnings, roughly 21% above its long-term norm. Prices may have come down from previously frothy levels, but bargains remain elusive.

It is worth remembering that the S&P 500 is still 57% higher than its previous low (over the past ~3 years) of 3,577 reached in October 2022 and from the March 2020 COVID low of 2,237, the index remains up over 150%. Even after a rocky first quarter, long-term returns are firmly in positive territory.

Beneath the surface, however, the market is undergoing a rotation. The best-performing sectors in the first quarter were the former laggards: Energy (+10.2%), Health Care (+6.5%), and Consumer Staples (+5.2%).

Meanwhile, previous market leaders such as Consumer Discretionary (-13.8%), Technology (-12.7%), and Communication Services (-6.2%) bore the brunt of the selling. In essence, investors have taken a more defensive position—whether that is a blip or a long-term trend remains to be seen.

S&P 500 Index at Inflection Points

It may be tempting to chalk up the recent market swings to President Trump’s return, but in truth, stocks were already stretched by the time he was sworn in—sporting the highest CAPE (cyclically adjusted price-to-earnings ratio) of any new administration in history. With hindsight, this year’s correction looks less like an unexpected shock and more like a healthy reality check.

“Liberation Day” and the Policy Shock

If the first quarter performance was a reminder that the market can still surprise, April 2nd delivered a jolt investors won’t soon forget. Dubbed “Liberation Day” by President Trump, he unveiled a sweeping set of tariffs—far broader than most on Wall Street had anticipated. The economic and geopolitical implications remain unknown, but markets responded decisively: U.S. equities shed $3.1 trillion in value in a single session. Former Treasury Secretary Larry Summers captured the moment succinctly: “Never before has an hour of presidential rhetoric cost so many people so much.”

In the days that followed, concerns mounted that the sharp declines in both the stock and bond markets could trigger significant and lasting unintended consequences. Amid mounting pressure—including public criticism from prominent business leaders—the administration announced a 90-day pause on many of the so-called “reciprocal” tariffs. Still, tariffs on China were significantly increased. As of this writing, the tariff overhang remains unresolved—and markets are reflecting that anxiety. The S&P 500 is down 10% year-to-date through April 18th, marking the fifth-worst start to a year since 1928. Interestingly, in each of those prior years, the market posted positive returns from that point forward—ranging from +13.1% (1932) to +34.2% (2020).

What’s so jarring to many investors is that this particular downturn wasn’t triggered by excess speculation or an exogenous shock. The 2008 crash stemmed from leverage and housing. The 2020 plunge came from a pandemic. This time, the damage has been largely self-inflicted—policy-driven and deliberate. The silver lining? If the cause is policy, the fix may be too. A simple course correction could go a long way toward reducing uncertainty and restoring confidence.

The Economy (So Far) Isn’t Cracking

Despite the noise, the real economy was still holding up well in early 2025. Retail sales were strong in March, led by a surprising surge in auto purchases—though likely a response to anticipated price hikes. Wage growth has outpaced inflation for nearly two years, and falling gas prices have provided at least some support to consumer sentiment. It should be noted that most of this data reflects a pre-tariff environment, though it was gathered during a time of heightened uncertainty.

The labor market continues to be a bright spot, with unemployment hovering around 4%. Many employers seem reluctant to cut staff, fearing they’ll struggle to rehire if the economy stabilizes or rebounds. Still, 2025 looks likely to be a slower year for growth. At the start of the year, an economist survey from The Wall Street Journal pegged the odds of recession at just 22%. Today, that number stands at 45%. Sluggish global trade, softening business confidence, and long-term demographic headwinds suggest that the go-go years of post-COVID expansion may be behind us—at least for now. And with U.S. equities still commanding a valuation premium over international markets, the road ahead may require some re-pricing if there is a lasting diminishment in the perception of U.S. exceptionalism.

The End of Easy

The steady march higher that defined the Biden years (2022 aside) has given way to something far more volatile. According to Krystal Hur of The Wall Street Journal, 2023 saw the S&P 500 notch 356 consecutive sessions without a single 2% down day—the longest such streak since 2007. That calm is gone. As of April 18th, all three major indexes are down at least 8% in 2025 and multiple down >2% days within a single week have not been uncommon since early April. The Nasdaq, once the crown jewel of the AI boom, has entered a bear market—off more than 20% from its recent peak.

The culprit? A surge in policy-driven uncertainty. Trump’s proposed tariffs have whipsawed markets and shattered investor confidence. The VIX (Wall Street’s so-called “fear gauge”) recently posted both its highest level since the COVID crash and its largest single-day drop on record. Meanwhile, trading volumes have exploded, with over 98 billion shares traded on the NYSE and Nasdaq in one week alone. Investors are grappling with a new environment—one where geopolitical risk, interest rate fears, and policy swings can dominate fundamentals in the short term.

A Case for Cautious Optimism

Coming into 2025, investor expectations were sky-high—and so were valuations. As of December 31, 2024, the S&P 500 was priced at 21.5x earnings. By March, the index had de-rated to a still historically elevated 20.2x, while consumer sentiment had fallen to 57.0—well below its long-term average of 84.4. That puts sentiment just above the lows seen in June 2022 and August 2011, both of which marked excellent long- term buying opportunities!

History tells us that when investor sentiment is deeply negative, forward returns tend to be above average. After past sentiment troughs, the S&P 500 has delivered 12-month gains of +24.1% on average— compared to just +3.9% after sentiment peaks. Since 1980, the average intra-year decline for the S&P 500 has been 14%, yet the index has finished higher in 73% of those years. Even in strong years like 2010 (+13.0% price return) and 2023 (+24.2%), the S&P 500 experienced corrections of 10% or more.

The point? Volatility is a feature, not a bug—and it doesn’t predict final outcomes. The years 2003, 2009, 2020, and 2022 all featured brutal drawdowns followed by powerful rallies. In each case, fear created opportunity. While the near-term path may be murky, the foundation remains solid: inflation is easing, interest rates may have peaked, unemployment is low, and consumers are hanging in. That doesn’t guarantee upside—but it makes the odds look better than headlines suggest.

Oil Prices: A Quiet Stimulus

While the focus has been on tariffs and tech valuations, one overlooked development could be quietly helping the economy: falling oil prices. With crude oil (WTI) falling from $80 a barrel in early January to $64 as of April 18th, consumers are paying less at the pump—a dynamic that acts as a stealth tax cut. This disproportionately benefits lower and middle-income households, who spend a larger share of their income on fuel. But the impact also ripples across the economy—reducing transportation costs, lowering input prices for businesses, and supporting consumer sentiment.

Could Tax Cuts Trump Tariffs?

One potential counterbalance to tariff-driven headwinds: the Trump administration’s proposed tax and deregulation agenda. These initiatives, if enacted, could provide meaningful stimulus. Among the most notable are eliminating taxes on tips—benefiting millions of service workers—and not taxing Social Security benefits. Both proposals would boost disposable income and potentially drive consumption.

On the corporate side, there’s speculation the administration could revisit a lower corporate tax rate, possibly returning it to 15%. Combined with regulatory rollbacks, that could reignite business investment and tip the scales toward domestic expansion. Whether these offset the negative effects of tariffs remains to be seen. But the push-pull between policy stimulus and protectionism may help explain why markets are swinging so violently—it’s not clear which side will win out. In the meantime, investors are left to navigate the tension between risk and reward—while remembering that periods of uncertainty often set the stage for long-term opportunity.

Riding Out the Reset

If the first quarter of 2025 has reminded us of anything, it’s that even the strongest bull markets eventually need to catch their breath. The swift reversal in high-flying tech and the sudden lurch toward defensive sectors may feel unsettling, but it’s not unprecedented. The pendulum always swings a bit too far in both directions before finding its next rhythm. While policy headlines and tariff threats have raised the temperature, history suggests that markets are remarkably resilient—especially when investor sentiment gets this sour.

We aren’t in the business of calling bottoms or predicting when the storm will pass. But context matters: stocks are still well above their pandemic lows, consumer and corporate fundamentals remain sturdy, and a reset in expectations is often the ingredient needed for future gains. If anything, this environment is separating the merely popular from the truly durable. That’s an environment where active investors—armed with patience, discipline, and a willingness to look beyond the headlines—can thrive.

Will volatility linger? Almost certainly. But, as ever, the road to higher returns is rarely a straight line. For investors able to tune out the day-to-day drama and focus on businesses with real staying power, periods like these have historically proven to be opportunity-rich—though not always comfortable in the moment.

Our approach remains the same: stick to the process, keep a long-term lens, and remember that uncertainty is often the price of admission for above-average returns. After all, markets don’t grow to the sky—but they do keep growing, just the same.

Best regards,

Mark A. Boyar

Jonathan I. Boyar

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.