On April 8th, the S&P 500 was down 15.28% year-to-date. It has since recovered and is now down only 5.45% year-to-date. It’s a nice recovery—though, of course, the index is still negative for the year.
Fortunately, other components of a diversified portfolio are positive in 2025! The total bond market is up 3%, and international stocks are up nearly 9%. European stocks, in particular, are up 15.7%. It’s encouraging to see international stocks and bonds contributing after being laggards for the past several years.
Keep in mind, the figures above reflect only a five-month time period. We invest for the long term. Looking back over five years, the S&P 500 is up 89%, and international stocks are up 60%.
Expanding the view to 10 years, the S&P 500 is up 164%, international stocks are up 62%, and the tech-heavy Nasdaq is up 335%. Not too shabby.
Meanwhile, the news remains as negative as ever. Financial media outlets like CNBC need to fill a 24-hour cycle, and investing just isn’t exciting enough to sustain that much airtime (I struggle to come up with enough content for a newsletter every couple of months!). So, they fill the time with fear and speculation. Try to tune it out and refer back to those long-term return charts.
As always, I’m here to answer any questions or bounce around ideas.
Ask Cale
Q: Small-cap stocks are down a lot this year—more than the Dow Jones and S&P 500. Is this a good opportunity to buy small-cap stocks?
A: Wow, that’s a tough one. Many of us remember when it was widely accepted that small-cap stocks (stocks in smaller-sized companies) had the potential to outperform large-cap stocks (stocks in larger companies). The early 2000s saw a significant period of small-cap outperformance, as did five other time periods dating back to the 1930s. That historical trend has hard-wired many of us to expect small-cap outperformance.
However, since 2010, small caps have significantly underperformed large caps. JP Morgan wrote in 2024 that small caps were at their “cheapest levels in 20 years—but for good reason: weaker earnings growth than U.S. large-cap growth.” And that was before they dropped another 12% so far in 2025.
So, what’s going on? One theory is that the small-cap index just isn’t what it used to be. The companies in the index now tend to look a bit like junk. Nearly 45% of small-cap companies had NEGATIVE earnings, compared to only 15% in 1990. They also carry more floating-rate debt, making them more sensitive to interest rate changes. And because many companies—especially tech firms—are waiting longer to go public, they’re debuting as mid- or large-cap companies rather than small-cap.
Now that I’ve painted a bleak picture of small caps, it’s worth noting that everything has a price at which it becomes a good buy. Small companies do have value, and at some point, they may become so mispriced that they’re worth buying. Historically, small caps have performed well coming out of recessions (because they get the absolute snot beaten out of them during recessions). Of course, timing that entry is incredibly difficult.
Ultimately, whether small caps make sense for you depends on your stage of life, your goals, and your risk tolerance. Small caps can be extremely volatile, so you’ll need an iron stomach to commit large amounts of money to them. That said, they can still have a role as a small part of a diversified portfolio.
Disclaimer: Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal can be achieved.
