1Q25 Review and Outlook

May 28, 2025

1Q25 HIGHLIGHTS

Although this letter is for reviewing 1Q25, the month of April was more impactful and so we will focus on post-quarter events more than the quarter itself.

There was wide dispersion in the performance of asset classes in 1Q25.  U.S. stocks sold off, VIX surged, bonds gained, and GOLD rallied big (+19%) in what can be described as a risk-off environment.  But there was confounding action as well with Emerging Market stocks and industrial commodities rallying – these asset classes usually gain in a risk-on environment.

The impetus for caution was the impending announcement by President Trump regarding “reciprocal tariffs” on all trading partners.  This levy was intended to be on top of the across-the-board tariffs announced earlier and in addition to the specific levies on some countries. Markets clearly had been pricing in “some” uncertainty.  However, the President’s history of changing track at the last minute when an acceptable compromise is offered, made the repricing very challenging.

On April 2, 2025, President Trump followed through on his threat of imposing reciprocal tariffs and called it a “Liberation Day.”  Markets reacted swiftly and risk assets sold off aggressively.  Within four trading days S&P 500 had lost a little more than 12% and the Index reached a bear market (-20%) from its 02/18/25 high.  Other risk assets followed suit.

Remarkably though, stocks recovered all their losses by the end of April and, in fact, are making a run towards the February high.  The turnaround in sentiment was partly a function of expectations that some form of retracement of the announced tariffs would be forthcoming and partly of attractive entry levels for investors who have been on the sidelines given the rapid run up in equities post 2024 elections.    

1Q25 MARKET SNAPSHOT

Notable in the above data is the performance of GOLD.  Even before the tariff announcement on April 2, GOLD had already reached all-time highs.  GOLD’s safe-haven status was, in our view, primarily responsible for its stunning performance.  Conversely, Bitcoin’s declined 12% and again ignited the old debate of whether cryptos can be considered GOLD substitutes or not.  Evidently, not yet!   

PERFROMANCE REVIEW 

 After five consecutive quarters of positive returns including four benchmark-beating performances, OppoQuest strategies underperformed their respective benchmarks this quarter.      Negative contributions to the performance came from:

·        Trade Desk (TTD) – after 4Q24 numbers missed expectations and mgmt. guidance also came in much lighter.  However, 1Q25 numbers were better than expected and the stock has recovered substantially 

-         We remain positive on TTD and believe this rebound will continue based on the solid adoption of its new platform KOKAI

·        Marvell (MRVL) – after missing estimates and giving a tepid guidance driven by continued weakness in their non-data center businesses

-         Our thesis is taking longer to play out here having expected the non-data center businesses to recover by now.  That said, it’s a matter of WHEN not IF and we expect that rebound over the next 12 months

·        United Parcel Services (UPS) – whose announcement of proactively downsizing Amazon’s low to no-margin business was negatively received

-         While this announcement was certainly a surprise, we view it very positively. We applaud mgmt.’s course correction and remain very positive on UPS’s earnings growth once volumes (ex. AMZN) recover – beginning in 2H25  

·        PayPal (PYPL) – on continued concerns of sustainability of higher margin branded business and slowing topline growth

-         We believe the branded business growth will not only sustain but will pick up when economic activity accelerates for this deep value name

As you would have expected, we followed through on our action plan and added substantial stock positions during the post Liberation Day April sell off.  In fact, we used all the cash (~30%) we had built up over the last two years.  We are also pleased to report that it turned out to be one of our best tactical trading opportunities as our timing proved prescient yet again.  Incidentally, it was one of the quickest reversals of 10+% equity market decline ever recorded.   

We took advantage of the panic type selling and made meaningful additions to our highest conviction ideas like GEV, NVDA, ARM, PLTR, and SNOW.  We also were able to initiate new positions in LMND and LTH.  By the end of the month, we were back to having an almost 100% exposure to stocks.

We also made a major SELL decision after the quarter with respect to our China exposure.  The continued rigidity of Chinese leadership to engage in trade talks led to that decision.  While we do think eventually both parties will settle and hash out a deal, we don’t think the expected rewards at the end of that process is worth the costs – both, in terms of volatility and in terms of opportunity costs. 

OUTLOOK

Our next 12 months’ outlook has changed after the selloff in April.  We now think tariff uncertainties have mostly been repriced. While there is always room for surprises, we think the market’s worst reactionary impulses are behind us. 

Far from the concerns of the tariff induced volatility, we think that the market will now focus on the two big impending catalysts this summer:

1)     the tax extension bill and

2)     trade agreements with major trading partners 

In fact, the administration has already announced a trade agreement with the United Kingdom (U.K.).  All indications point to more such announcements before the 90-day moratorium on reciprocal tariffs expires in July.  The country that markets are closely watch is China.  As mentioned earlier and notwithstanding the bluster from the Chinese leadership, we expect them to agree to a deal as well. 

With respect to the tax bill going through congress currently, we expect the republican party to iron out their differences and ultimately pass this bill.  Indeed, the House of Representatives has already passed their version.  The Senate’s approval is pending. Some of the provisions in the bill strongly favor growth and we think its passage will provide businesses with the needed certainty and incentives to make aggressive long-term investments.      

Overall, we think the resolution of bilateral trade issues with all leading trading partners and the passage of the tax bill will be significant positives for risk assets.  We expect equities to end 2025 materially higher, providing a third consecutive year of solid gains for investors.  We are well positioned for that environment with over 90% stock exposures in all our strategies.

Sincerely,

For OppoQuest

PARESH JAIN

Managing Member & Portfolio Manager