For the first time in over a decade, Wall Street investors who spread their bets are finally getting paid. The old “don’t put all your eggs in one basket” approach is actually working in 2025. Constant market shakeups, a brutal tariff war, and souring sentiment on US stocks have flipped everything. And the ones who always pushed diversification? They’re not laughing—but they’re not losing anymore. The shift comes as investors ditch US equities at record speed. A Treasury index has jumped nearly 3% this year. Gold is on fire. Corporate bonds are climbing. After years of getting steamrolled by large-cap stocks, all the long-ignored assets are getting their moment. Even cross-asset portfolios, which spread out risk across the map, are finally beating stocks. These ideas were buried after 2008. Now, they’re back with a vengeance. Wall Street rotates out of US stocks as diversification gains The S&P 500 barely managed to close 0.5% higher after another twitchy week, still stuck in a correction. But other strategies are crushing it. RPAR, the ETF that spreads capital across commodities, bonds, and more, has gained over 5% to start the year. That’s nearly 9 percentage points ahead of the S&P. It’s one of the clearest signs that the market rotation is real. “It feels a long time coming,” said Meb Faber, founder of Cambria Funds. “Does three months make a trend? We’ll see. But these sort of secular trends don’t necessarily last just a quarter.” Faber’s been screaming into the void for years. His global asset-allocation ETF (GAA)—which spreads across major assets—has underperformed large-cap US stocks in 14 of the last 16 years. He once called it a “bear market in diversification.” Now, GAA is finally positive, up 3% so far in 2025. It’s on track to post its best performance versus the S&P 500 since it launched. The big question is whether it sticks. Since the global financial crisis, US stocks have only lagged Faber’s global mix twice—2011 and 2022. Both times, the S&P came roaring back. Still, after years of stock-only gains, American households now hold more equities than ever before, based on overall financial exposure. That makes it easier for them to shift. The explosion in ETFs is helping, too. New funds now give them cheaper, faster access to everything from foreign bonds to commodities. The price action proves it. Long-dated Treasuries, which got wrecked for four straight years, are up big again. They’re finally catching bids on safe-haven demand and signs that the US economy is slowing down. The iShares 20+ Year Treasury Bond ETF (TLT) has beaten its equity rival in seven of the last eight weeks—the first time that’s happened since 2014. A 60/40 strategy—60% stocks, 40% bonds—is working again. Bloomberg’s version of this model is outperforming the S&P 500. Gold has hit a new record. It’s gone up nearly every single week this year and just pushed a key commodity index to its biggest weekly gain in two months. Hedge fund-style strategies make a comeback There’s also new life in the weird stuff—like quant funds. These are computer-driven strategies that pick stocks based on traits like momentum or value. The Bloomberg GSAM US Equity Multi Factor Index, which tracks this, has climbed in three of the past four weeks and is up 2.5% for the year. And it’s not just picking stocks. People using options to protect downside or create income are also doing better than just holding the S&P 500. “Diversification has delivered its promised benefit during this period of turmoil,” said Mayukh Poddar, senior portfolio manager at Altfest Personal Wealth Management. The shift is showing up in big money flows. Bank of America says that managers are cutting US equity exposure at record levels. They’re redirecting funds into Europe and emerging markets. That’s the most aggressive rotation in years. Retail investors, on the other hand, are still chasing the same tech dip they’ve bought for years. “Many people, particularly in the last three or four years, buy it every time it goes down and immediately get gratification,” said John Flahive, head of fixed income at BNY Wealth. He added, “You need to have a market environment or a landscape that you actually have equity prices that don’t bounce immediately back to change the psychology.” There’s no shortage of warning signs. US stock valuations are still high. Tech remains too dominant. Growth is looking weak. That’s pushing firms like AQR Capital Management to roll out aggressive diversification tools. Pete Hecht, who leads the North America portfolio solutions group there, says investors need to get smarter. AQR is pitching something called portable alpha—a hedge fund-style tactic that uses derivatives to mimic the market while putting the spare cash into exotic trades like trend following or market-neutral strategies. Among six ETFs that use this approach, three are already positive in 2025. “I would say investors need to lean on diversification even more than normal,” Hecht said. “I wish I had a crystal ball, because if I did, I wouldn’t hold a diversified portfolio. I would only hold the best performing market. But in reality it’s really hard to time markets.” Corporate earnings slump while tariffs add pressure US stocks snapped a four-week losing streak on Friday. The S&P 500 gained just 0.1%, and the Nasdaq matched that. But the climb wasn’t backed by strong numbers. FedEx dropped 6.5% after cutting earnings guidance. The company blamed “weakness and uncertainty in the US industrial economy.” Nike fell 5.5% after forecasting a sales dip. It cited tariffs and low consumer confidence. Lennar, the second-biggest homebuilder in the country, slipped 4%. High rates, inflation, and low housing supply are making it hard for people to afford homes. The Fed tried to calm nerves earlier in the week by holding rates steady and hinting at possible cuts later in the year. But the bounce didn’t last. “Markets are increasingly focusing on the growth scare caused by Trump policies,” said Manish Kabra, head of US equity strategy at Société Générale. The tariff mess is hitting harder than expected. “Both tariffs and [Department of Government Efficiency cuts] increase uncertainty,” Kabra added. Bank of America analysts, led by Claudio Irigoyen, called the tariff moves “more aggressive and muddled than expected.” The Doge budget cuts, which include agency shutdowns and layoffs, are expected to drag on spending from both the government and consumers. BofA has now slashed its GDP forecast for the first half of 2025 to 1.5% from 2.4%. The bank also bumped up its core inflation target for the second half to 3%. A Goldman Sachs survey went out on Thursday, showing that 90% of investors have cut their 2025 GDP forecasts since December. Three out of five say tariffs are the biggest economic risk this year. Even Europe’s not immune. The Stoxx Europe 600 fell 0.6%, ending a bad week for global equities. The old belief that Wall Street only rewards risk-takers in equities is being tested. Portfolios that used to get laughed at are finally outperforming. This isn’t about philosophy. It’s just numbers. And right now, the numbers favor diversifiers. Cryptopolitan Academy: Coming Soon - A New Way to Earn Passive Income with DeFi in 2025. Learn More
