Trending Topics
This Month’s Trending Topics
Tariffs
Market volatility, especially to the downside, has been a topic of concern for many of you over the past few weeks. After hitting a new all-time high in mid-February, equity markets sold off on tariff talks and the potential impact on the global economy.
President Trump announced 25% tariffs on Mexico and Canada, plus an additional 10% tariff on China which led to a selloff in stocks. A tariff is a tax on an imported or exported good. The firm importing the goods, many of which are American businesses, actually pays the tariff. Who bears the ultimate burden isn’t so simple.
The importer may pass the cost of the tariff along to consumers by raising prices. Alternatively, a foreign exporter might burden the cost if they are willing to cut prices to avoid loss of sales. This could ultimately lead to either higher prices or job losses if sales decline.
Assessing the potential damage to economic activity is challenging, especially given the rapidly changing events. One day the tariffs are on, the next day off, then a one-month reprieve for the auto industry, then a pause, and some likelihood this could turn out to just be a negotiating tactic that never gets implement to the degree being proposed. The unfolding narrative could, and probably will, change tomorrow.
Volatility
As much as you know they will happen at some point, market declines are still painful while they are occurring. This is the price you must pay as an investor for taking on risk. There is no free lunch with the stock market. Getting market returns without downturns is like wanting to eat a piece of chocolate cake with no calories. You have to be willing to accept the downturns at times to achieve the higher returns over the long run.
Diversification/Outlook
One of our concerns coming into the year was the valuation of the S&P 500 versus historical measures, especially in large cap growth stocks. Recent Morningstar data showed developed large cap growth stocks entered the year trading at 98th percentile valuations, meaning they have been more expensive only 2% of the time ever. At the same time, developed large cap value stocks were trading at 2nd percentile valuations versus growth stocks, being less expensive only 2% of the time.
This is why we maintained a diversified approach even as growth stocks were outperforming value and international stocks. While diversification may be painful at times, as it has been the past few years as a small group of stocks generated such a large portion of returns, 2025 has seen rotation into other areas of the market which may continue as investors look for more reasonable valuations.
We still believe in asset allocation and diversification, taking the right amount of risk needed to achieve long term goals, and focusing on the long-term drivers of the economy such as income and profits. However, we do acknowledge that the sheer number of geopolitical developments which have occurred in the past two months might be creating enough uncertainty that economic activity could diverge in ways we have not seen before. We are taking an approach to judge the potential impacts of these events as they unfold and not to try and predict what may or may not happen.
While some of you have expressed that you feel this time may be different given the uncertainty with the current political landscape, we still believe things will work out in the long run and there are some things to be positive about. We completely understand the fear watching markets fall, especially with so much uncertainty. They may continue to fall, which wouldn’t be unusual when looking at the past. We also don’t want to do something or have you do something based on fear of things which may or may not happen.
But, if you are losing sleep at night and don’t feel like you can stomach the risk level at which you are currently invested, please give us a call so we can discuss if a change is needed and how it may impact your long-term goals.
This material is meant for general illustration and/or informational purposes only. Views expressed in this newsletter may not reflect the views of Osaic Wealth, Inc. It is our goal to help investors by identifying changing market conditions. However, investors should be aware that no financial advisor can accurately predict all of the changes that may occur in the market. This material should not be relied upon as investment advice. Investors should note that there are risks inherent in all investments, such as fluctuations in investment principal. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. This article contains forward looking statements and projections. Past performance is no guarantee of future results. Neither Osaic Wealth, Inc. nor its representatives provide tax or legal advice. If you don’t wish to receive marketing emails from this sender, please reply to this email with the word REMOVE in the subject line.