First Quarter Performance by Asset Class
US Large Growth Stocks -9.65%
US Large Value Stocks 2.03%
US Small Cap Stocks -7.71%
International Stocks 6.29%
Emerging Market Stocks 2.77%
Intermediate Corporate Bonds 4.81%
Long-Term Treasury Bonds 6.29 %
Stocks and bonds delivered mixed results in the first quarter, with U.S. large-growth stocks showing the most weakness. Meanwhile, international stocks and bonds offered positive contributions to portfolios
Act One: The Tariff Plan
Volatility began to increase in the first quarter and surged in April after the president announced the administration’s new tariff plan. Tariffs are generally considered a drag on long-term economic growth, and markets have responded accordingly, viewing them as a negative factor for the valuation of publicly traded companies. Many businesses are affected in less obvious ways, such as higher priced raw materials and key components, making them vulnerable to the ripple effects of trade barriers.
Tariffs can contribute to inflation, which is typically unfavorable for the bond market. When the full scope of the tariff plan was revealed, bond markets began to respond negatively. Prices, which had climbed in the first quarter, started to decline. This drop is necessary to adjust yields upward, as higher interest rates are required to compensate for rising inflation expectations.
Act Two: The Tariff Pause
On Wednesday, the administration announced a 90-day pause on all tariffs—except those targeting China. Markets responded with a sharp rally, with some indexes surging as much as 10% in a single day. However, tariffs on Chinese goods remain on track to exceed 100%, significantly raising the cost of many everyday items. In response, China has implemented its own retaliatory measures, effectively bringing trade between the two countries to a standstill. Despite the temporary relief elsewhere, this ongoing standoff represents a substantial net negative for both U.S. and global businesses—likely contributing to the market's inability to sustain Wednesday’s momentum.
Bonds continue to display significant weakness, creating a challenging environment for investors. Typically, when economic data signals a potential recession, markets expect the Federal Reserve to lower interest rates to stimulate growth. However, the current outlook is complicated by the simultaneous threat of both recession and inflation. This limits the Fed’s ability to cut rates without risking a surge in inflation, putting policymakers—and investors—in a difficult position.
Act Three: And What about Me?
The future of policy in the coming months and years remains uncertain. However, the willingness to engage in negotiations—expressed on Wednesday—is an encouraging sign. Global trade is essential and has, overall, benefited our nation. Ensuring that all parties follow the same or similar rules would significantly enhance our ability to compete. If that is the ultimate outcome, we can be optimistic that the net effect will be stronger economic growth, both in the U.S. and globally. This, in turn, could help drive stock prices higher once again.
Investors often feel the urge to exit the market and wait for clearer signs of economic or policy improvement. However, as we saw with the sharp move on Wednesday, markets react swiftly—often well before the actual data reflects any progress. Stock and bond prices are driven by future expectations, not present conditions. Just one positive trade announcement can rapidly shift sentiment and send markets higher, leaving cautious investors on the sidelines.
Rather than attempting to time the market by jumping in and out, we firmly believe that buying during a crisis is one of the most effective ways to capitalize on market volatility. In other words, when markets go on sale, it’s time to start shopping—strategically.
We take a measured and disciplined approach to this. If a downturn turns out to be more prolonged, we don’t want to invest heavily when the market is down just 10%, only to see it fall significantly further. That’s why we follow a carefully structured strategy that ensures we have the resources to keep buying, even if the selloff goes deeper than expected.
Here’s how our process works:
1. Monitor Monthly S&P 500 Performance
At the end of each month, we evaluate the closing price of the S&P 500. If it’s down 20% or more from its highest monthly close over the past 12 months, we consider it a signal to begin increasing stock exposure.
2. Increase Exposure Gradually
For most clients, we then add 2–3% to their stock portfolios each month while the market remains at a discount. This gradual pace allows us to benefit from extended downturns, turning a 6–12-month crisis into an opportunity to accumulate high-quality investments at lower prices.
If you’re interested in a more aggressive approach—such as increasing stock exposure by 5% per month—please let us know, and we’ll tailor the strategy to your preferences.
We do literally feel your pain! We are walking with you through this and are glad to meet with you and show you the market history that demonstrates that patience works. Markets solve problems and overcome barriers that sometimes seem insurmountable. Thanks for trusting us to serve you in this difficult time.