As we step into a new quarter, we want to take a moment to express our gratitude for your confidence and partnership. Our commitment remains strong in helping you navigate the financial landscape with confidence and clarity.
Market Overview & Insights
Over the first three months of 2025, we have seen market fluctuations driven by economic shifts, policy decisions, and global events. While volatility can be unsettling, we continue to emphasize a long-term perspective, diversified strategies, and disciplined financial planning to help you stay on track toward your goals.
Below are the index returns for the quarter, as we continue to create this client letter, we will continue to track the historical performance of the indices below. As we can see below, what has been hit the hardest are growthier names indicated by the Nasdaq below. These were also the parts of the market that performed the best in 2023 and 2024. International was the best performing part of the market, bonds performed very well for the quarter and even dividend paying stocks (represented by the Dow Jones) held up relatively well.
Obviously, the question for most investors is the impact of tariffs on their underlying investments and the cost of goods and services. Tariffs were outlined on April 2nd, at a higher degree to certain countries than originally expected and the market did not react well the following day, April 3rd. If the tariffs were to stay in place through the remainder of this year, and I do believe we have to prepared for this to be true, it would likely reduce corporate earnings, GDP and have an inflationary impact. We do not see this causing a recession, nor do we see the inflationary impact being over burdensome. From a positive note, corporate earnings have been very strong (above trend growth last year, expected for this year and next year) which allows for some compression before they become a concern.
These are the reasons we stress the importance of diversification, including bonds, market neutral, gold and international stocks. Even within the US, owning dividend paying stocks instead of just all growth oriented can smooth out the ride and should enhance returns as we move through the remainder of the year. You may hear the term rotation, it does appear that we are in the process of rotating out of technology and into other areas of the economy, such as consumer staples, health care, financials, utilities and certain industrials.
As most of you are aware we review our allocations each quarter and this is on the calendar for April 14th. At this time, we will review the stock/bond mix, discuss if we should increase client exposure to market neutral, gold, bonds, international or dividend paying stocks. As we go through this process, I believe we have communicated to most of you that we have curated portfolios that encompass all the above asset classes. Beyond just reviewing our allocations and positions and making changes where we believe they are needed; we also are diligent about rebalancing the portfolios. For IRA accounts, we do tend to rebalance every quarter, whether we make allocation changes or not, since there are not any income tax consequences. Inside of non-retirement accounts, we will rebalance 1-2 times each year to minimize the income tax impact. There may be a few of you that are not currently participating in these, and if you would like more information, or discuss these in greater detail, let us know and we can set up a time to discuss.
Your Financial Progress
We encourage you to review your investment plan periodically to ensure it aligns with any life changes or new objectives. If you have experienced significant events such as a career transition, a new family addition, or a change in financial priorities, now is a great time to reassess and adjust accordingly.
We should always use times such as these to reassess risk tolerance and confirm that your asset allocation is aligned with your risk tolerance and time horizon – if this is in question, we should discuss and make certain that all the above is still aligned as it should be.
Also, for those of you making contributions to retirement accounts or investment accounts, the first reaction is to stop or reduce those, however, this shall pass and continuing to contribute, even through market downturns, will benefit you tremendously in the future.
Upcoming Opportunities
With the year progressing, several opportunities may arise in tax planning, investment strategies, and portfolio rebalancing. We are here to guide you in making informed decisions that align with your financial aspirations.
We are also approaching the beginning of first quarter earnings, which should still look attractive, the greatest risk is guidance provided for the next quarter or remainder of the year.
Regarding the Federal Reserve, 2-3 interest rate cuts are currently priced into the market, but it may be tough to get to that many, I think we see 1 or 2, and they would likely be later in the year as opposed to the currently assumed June/July timeframe.
I do see some positives – if interest rates do not go extremely higher, meaning the 10-year treasury stays between 4 and 4.5%, bonds should continue to perform well and provide the volatility buffer that they historically have. International has also been a bright spot, and with the likelihood of continued stimulus outside the US, foreign stocks should also continue to be beneficial to our portfolios. Lastly, dividend stocks, or other areas besides technology may be the best performing area for the remainder of the year, meaning financials, utilities, consumer staples, healthcare and some industrials.
As an aside, we do have access to products that can allow you to participate in the up markets but reduce or eliminate the downside. This is merely to make you aware of these products, they are not appropriate for all of your investment assets but may be an appropriate alternative for some of your investment dollars. If this is something you would like to explore, let us know and we can determine if this is a fit for your situation.
How We Can Help
Portfolio Review: Ensure your investments remain aligned with your risk tolerance and goals.
Tax Planning: Explore tax-efficient strategies ahead of the year-end.
Retirement Planning: Stay proactive in building and securing your financial future.
Market History
As a reminder, JPMorgan has a massive collection of data that we access, one data point to consider is that dating back to 1980, stocks have been positive 34 of 45 years, which is 75% of the time, but every has a peak-to-trough drawdown that has averaged 14.1% over that time. Meaning that even in years when stocks are positive, sometime within the year they will fall an average of 14% in the year. Also, Frist Trust provided us with some data going back to 1926 – the average positive year is up 21.5% while average negative year is down 13.4%. A long-term average return of 8-10% often gets quoted, but the good years often exceed those. Also, over those 99 years, 73 years were positive, or 74% of the time.
In Summary
As we go through volatile patches in stocks, these are the reasons we own the other assets that tend to underperform when stocks do well. These other asset classes are what allow us to remain invested in stocks. Ultimately, stocks will recover, and we will participate in that recovery. In the meantime, bonds, gold and market neutral will reduce the downturn and should be positive through the near-term volatility. Historically, the wrong answer is always selling out and going to cash. That results in timing the market, and investor behavior tends to be selling out near the bottom and getting back in when it “feels good”. Once it feels good enough to invest again, the recovery has already started, and you miss out on some or a majority of the upside.
Looking Ahead
We are excited about the continued growth of our firm and our ability to serve you even better. Our focus remains on delivering personalized financial advice tailored to your needs.
Please do not hesitate to reach out to schedule a review meeting or discuss any questions you may have. We appreciate your trust and look forward to supporting your financial journey.
Warm regards,
*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.