March 2025 Investment Commentary
Periods of volatility can be challenging, but they also create openings for disciplined investors. We are here to help you take advantage of these opportunities while staying aligned with your goals. For those who watched our recent webinar, you may not be surprised to see some of the recent market events. Replay here.
Short version
- Some markets have corrected -10% since February 19th, 2025. Stock market corrections transfer wealth from the impatient to the patient.
- Feeling nervous about down markets is normal.
- The culprit for the recent downturn? Read the detailed version below đ
- Good news – diversification is working! Bonds, gold, international stocks, real assets, and private real estate are outperforming the US stock market as of late.
- Great news – we have a plan. That plan includes weathering many corrections. We are actively investing your portfolio and making changes as needed.
Now, for those who love the details
After 20% plus returns in 2023 and 2024, US stocks have taken a breather. The new political leadership in Washington, DC is changing direction on a variety of fronts. The war in Ukraine, DOGE, tariffs, government spending, and the debt ceiling are just a few things impacting markets and political discourse.
- What is causing the stock market volatility the last couple weeks?
- How we prepare (not predict!) for these market pullbacks
- Some bright spots in our investment allocations
- Tariffs, politics, geopolitics and investing.
- Any interesting buys?
Reminder- If you are still investing and not retired, lower market prices are probably a good thing for you. You get to buy at better prices when things are down. Now is a great time to put cash to work in your investment accounts. Retired clients typically have 40% of their portfolio in bonds, gold, cash, real assets, and other things that arenât stocks. We can ride out a multiyear market downturn before needing to sell any stocks. Whatever clouds are in the sky right now, history tells us will likely be gone in 5+ years when that part of the portfolio is needed.
US stocks were off to a nice start in 2025, hitting a peak on February 19th. Since then, US stocks are down around 10% from those all-time highs.
The long-term performance of the US stock market has been one of the best ways for investors to grow their wealth. Returns of 10% annualized have been achieved over the last century in the USA. Even better-itâs in a tax efficient and low-cost delivery method. Great news, right?
The chart above shows returns by decade for S&P 500, Small Caps, Treasuries, Real Estate, and even gold.
Oddly, it is quite rare to get a year where stocks perform near their 10% long run average. It is often up 20% or down 10%. 73% of years ended up positive.
The price of admission for this potential 10% return is short term volatility. The price to pay for physical fitness? Short term pain in the gym. Price to pay for healthy diet? More broccoli and less cookies. It is no different in investing. Doing the wrong thing (selling to cash, skipping the gym, or eating cookies) often feels good in the moment but hurts you in the long run. Some clients were bummed the last few years that their safer investments, like bonds, werenât keeping up with the 20% stock market returns. Now, they are glad they have them.
Markets generally experience an average correction of approximately -14% each year. Occasionally, these corrections become more severe, while other times the market recovers and reaches new all-time highs.
We are approaching a typical market pullback. Since 1928, there have been over 38 corrections of 10% or more. Some readers have experienced many of these, while others only a few.
So, what caused this correction?
Partially, because the market was starting from a high base. We just had one of the best 15 year runs in history.
Source: The Idea Farm, Bridgewater Associates
Some of this growth was fueled by the government borrowing lots of money.
$31 trillion works out to be around $91,000 per person in the USA. At some point, investors will lose appetite for our debt, and we will need to get our finances in check. The longer we wait to address that, the worse the medicine will taste. Democrats typically want to increase taxes. Republicans want to cut spending. We will see how that plays out. On our current trajectory, the debt will just keep climbing.
Optimism built in the markets after the November 2024 election. Hopes were that President Trump, and a Republican led congress, would craft a pro economic growth agenda. Tariffs, asking Europe to pay its fair share of NATO costs, ending the war in Ukraine, etc. were all campaign pledges and, in theory, those should not have caught the âmarketâ off guard. Perhaps the issue is that we are getting the hard stuff first and tax cuts and deregulation have yet to come.
Economic data has been softening a bit to start the year. The coldest January since 1988 in the USA limited economic activity. Wildfires in California also had a negative impact. Tariff negotiations have caused uncertainty for corporate America. DOGE job cuts are just starting to impact labor statistics.
President Trump did an interview that aired Sunday, March 9th. His comments likely spooked the market this week. The message was that he is willing to endure some short-term volatility in the economy and markets to pursue his agenda of bringing economic growth back the USA.
When questioned whether he was expecting a recession in 2025, Trump responded: âI hate to predict things like that. There is a period of transition because what weâre doing is very big. Weâre bringing wealth back to America. Thatâs a big thing.â He then added, âIt takes a little time. It takes a little time.â
Predicting recession is a favorite pastime of the media and market talking heads. Great reminder on why itâs a fool’s errand to try and time a recession. Few, if any, are good at that.
| Asset Class | Year to Date Return (3/11/25) |
| S&P 500 | -5.0% |
| International Stocks (MSCI EAFE IMI Net) | 7.8% |
| Emerging Markets Stocks (MSCI EM IMI Net) | 2.2% |
| Gold | 11.2% |
| US Bonds (Blomberg US Aggregate) | 2.3% |
| Emerging Markets Bonds (Bloomberg Em Unhedged) | 2.5% |
Source: Tamarac
Are tariffs good or bad?
Itâs a tricky one. A lot of the press is negative on tariffs under President Trump. However, there are smart people on both sides of the issue. Why do almost all countries use tariffs in one way or another if they are so bad? Tariffs are probably more negative than positive, but they can serve a purpose.
During his first term, President Trump implemented tariffs. Before 2018, nearly every major economy imposed higher tariffs on the United States than the United States did on them.
Historically, this is a bipartisan issue. President Biden kept most of those tariffs in place and even increased some on China. Presidents Bush and Obama also put tariffs in place.
From PBS:
Before the federal income tax was established in 1913, tariffs were a major revenue source for the government. From 1790 to 1860, tariffs accounted for 90 percent of federal revenue, according to Douglas Irwin, a Dartmouth College economist who has studied the history of trade policy.
By raising the price of imports, tariffs can protect home-grown manufacturers. They may also serve to punish foreign countries for unfair trade practices such as subsidizing their exporters or dumping products at unfairly low prices.
Yang Zhou, an economist at Shanghaiâs Fudan University, concluded in a study that Trumpâs tariffs on Chinese goods inflicted more than three times as much damage to the Chinese economy as they did to the U.S. economy.
From NBC:
Whatâs more surprising, however, is that one House Democrat just introduced a bill to codify Trumpâs 10% across-the-board tariffs, revealing how the long-dormant trade policy splits both parties.
Despite Harris and other attacks on Trump’s tariffs, the Biden-Harris administration decided to keep some of the tariffs Trump imposed during his first term on Chinese steel and aluminum and even increase the fees on strategic sectors like electric vehicles and semiconductors.
Politically, however, tariffs appear fairly popular, with a recent Reuters/Ipsos poll finding 56% of Americans support the idea, and that number is likely to be even higher in a Trump-leaning district like Golden’s, which, like many others, saw a raft of plant closings over the past 40 years
We think tariffs shuffle up global supply chains. Your holiday lights may be the prime example.
Companies and countries shift their supply chains in response to tariffs. This creates opportunities for investors. Cambodian Christmas light business might be booming.
Perhaps the issue in markets is that we are getting our vegetables first and dessert (tax cuts, end of war in Ukraine, government debt reduction, and deregulation) has yet to come. President Trump likely felt that the strong economy would give him cover to fight a trade war. That might not be true as economic data is weaker and many countries are fighting back with retaliatory tariffs.
The silver lining?
These tariffs can go away or be recalibrated as quickly as they were announced. President Trump may course correct if the markets tell him the strategy may incur too much short-term pain. There may be more method to President Trumpâs madness than meets the eye. For a deep dive, listen to this podcast here . Some points you may have not seen in the mainstream media.
How were we preparing for geopolitical uncertainty?
Being diversified and disciplined. It was tempting to chase the stellar stock market returns the last few years and abandon the ballasts in a portfolio. We are holding up much better than the US stock market this year.
Our focus is on being apolitical and getting the best investment results possible. Politics have become more divisive the last several years. We spend way more attention looking at data and fundamentals, but we are aware of the political discourse. My made-up data below sums up my personal view.
Did you know that negative media is addictive? See research from Mayo Clinic. Negative articles also get more clicks and sell more ads. Not a great combo! When we watch geopolitics on Facebook, Instagram, Fox, CNN, and MSNBC it is mostly negative talking points.
Where are opportunities today?
We like small company stocks, international stocks, select US large companies, gold, real estate, BONDS!, and real assets. Bonds yields are juicier than they have been in decades. 4-8% current yields in bonds depending on the risk profile. In the chart below, the blue diamonds are current yields, and purple bars are ten-year averages.
Source:Â Guide to the Markets â U.S. Data are as of February 28, 2025.
What if markets go down more?
If we get to a 20% market decline, our rules-based approach tells us to buy what is on sale and we will. We did this successfully in 2018, 2020, and 2022. Stocks are the only thing people donât like buying on sale. If stocks get 10% cheaper from here, we think bargains emerge.
Remember, we are invested alongside our clients, so we feel the downturns as well!
We are here for you.
If you need reassurance in your plan, let us know. That is what we are here for. You may not see it, but daily there are buys and sells in your portfolio with the goal of always getting the best possible returns for the risk.
Our team appreciates the opportunity to serve your family. Thank you partnering with us.
