Market Volatility Update & Our Perspective

Over the last two days, equity markets have experienced a sharp increase in volatility. As of this writing, the S&P 500 has declined by over 8%, while the Nasdaq has dropped more than 10%. We’d like to share our perspective on what’s driving the decline and how we’re thinking about the road ahead.

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What’s Driving the Decline?
Several factors are contributing to the recent market pullback:

1. Tariff-Related Concerns
President Trump’s recent tariff actions have raised concerns that:

• Economic growth could slow due to a decline in exports
• Higher import prices may lead to increased inflation
• Rising prices may reduce consumer spending and demand
• Weaker demand could slow corporate hiring

2. Policy Uncertainty

• Proposed cuts in government spending could negatively impact consumer demand and employment
• Continued dysfunction and disagreement over the federal budget are unsettling markets
• Stricter immigration enforcement policies may create challenges in the labor market

3. Valuation Reset

• Stock valuations entering 2025 were elevated, following strong gains in 2023 and 2024, leaving the market sensitive to re-pricing amid any macroeconomic concerns
  

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Where Might We Go From Here?
While short-term market movements are unpredictable, here’s what we’re watching:

• Further downside is possible if tariffs and retaliatory measures continue to escalate.
• However, markets often price in future expectations, so it’s possible that the worst-case scenarios are already reflected in current prices.

Key questions include:

• How long will the tariff-related uncertainty last?
• What will the actual impact be on consumer behavior, unemployment, and corporate earnings?

Potential catalysts for a rebound include:

• Economic data showing tariffs have less impact than feared
• Policy adjustments by the Trump administration in response to political or market pressure
• Accelerated trade negotiations with major U.S. partners

Also worth noting:

• Investors are increasingly expecting the Federal Reserve to lower interest rates, which could support consumer demand and large capital purchases
• Steady inflows into markets from:
  • Automated 401(k) contributions from millions of workers
  • Institutional mandates to reinvest cash into mutual funds and stock portfolios
    

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What Should Investors Do?

• Remain invested with a long-term perspective.
• Market declines like this often present opportunities to invest at more attractive valuations.
• Consider adding to positions gradually, in increments over the coming weeks—since timing the exact bottom is nearly impossible.
• Historically, the U.S. stock market has seen at least seven corrections of more than 15% in the past 30 years, and has consistently recovered, with a median rebound time of under a year.

We’re closely monitoring the situation and will continue to keep you updated. As always, if you have any questions about your portfolio or want to discuss your strategy, please don’t hesitate to reach out.

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