Shiller US update: Tariffs, tech and ongoing dispersion

US equities experienced challenging backdrop in the first quarter of 2025 on the back of fears of an economic slowdown following the announcement of substantial tariff increases by the Trump administration. These developments have had a pronounced impact on the Magnificent 7, whose average performance was -16% over the quarter. On the other hand, the remaining U.S. stocks had muted performance. Overall, the S&P 500 Index delivered -4.4% over the first quarter, ending a series of five consecutive quarters of positive performance.

In this context, the Shiller US Index delivered a robust performance compared to the S&P 500 Index, coming in at plus 1% over the period in absolute terms and resulting in a + 5.4% relative outperformance versus the S&P 500 Index. The Shiller US Index also outperformed other factor indices including S&P 500 growth, value, quality and equal weight indices.

Throughout the quarter the Schiller US Index remain invested in consumer staples and communication services, which had a positive impact. Exposure to consumer discretionary, financials and healthcare also had a lesser positive effect, while exposure to materials in February had a slight negative impact.

The primary factor in the relative outperformance of the Schiller US Index was the lack of exposure to the IT sector. Contributions from other excluded sectors were slightly negative, especially for the energy sector, which was the best performing sector over the quarter. Looking forward, we continue to see strong dispersion in sector valuations with, on the one hand, the IT sector, which remains very expensive and predominant in the S&P 500's current valuation, and on the other hand, the remaining sectors, which are closer to fair value. Within this context, we believe that there are numerous opportunities for the Schiller US Index to benefit from sector dispersion thanks to its active sector rotation approach.