On April 7, 2025, we hosted a call to address our clients’ frequently asked questions as we navigate through the volatile market and uncertain economic landscape. Read a recap of the conversation below.

Market Effects

The aggressive tariff policies implemented by the Trump administration have caused significant concern among investors and economists. Announced tariffs are much more than “reciprocal.” They are very aggressive, present a major tax increase and are potentially the most disruptive government policy ever with an estimated annual cost exceeding $600 billion. We expect this economic dislocation will at best reduce GDP growth by about 1.0% in 2025 with a strong possibility that the economy tips into a recession. S&P 500 earnings are beginning to come down. Optimists believe 2025 S&P 500 earnings estimates could fall by 8% while more pessimistic scenarios have earnings dropping 15+% in a recession.

Interest Rates

Tariffs are expected to both increase prices and slow the economy, which puts the Federal Open Market Committee between a rock and a hard place. The FOMC has signaled their intent to hold steady as the inflationary impact of the tariffs is likely to hit the economy before the slowdown. However, the market is now expecting more than four ¼ point cuts over the next twelve months. Short-term Treasury rates are likely to fall further as investors seek stability.

Asset Allocation, Cash, and Market Timing

Trading above 22x earnings, markets were “priced to perfection” to start 2025. Valuations have been reduced by the pullback in stocks but could still go lower. While it’s unsettling to experience a decline in portfolio value and possibly a bear market, it’s imperative that investors avoid knee-jerk reactions. In most cases, sticking to your existing plan while reconsidering your long-term asset allocation and risk appetite is the right course of action. Timing the market is very error-prone. Volatile down and up days tend to cluster, which can mean that selling after several down days can backfire. Correctly timing the market often requires investors to redeploy cash when news flow is the most negative and fear is highest. In last week’s Outlook, we highlighted the potential for positive returns when investing during times of heightened uncertainty.

Portfolio Strategies

Our investment philosophy is built on a foundation of quality, consistency, and discipline – an approach that has been tested through countless economic cycles. By investing primarily in high quality companies with a history of increasing dividends, we aim to reduce risk and provide stability even during periods of market turbulence.

Our focus remains on the strength of our portfolio companies, emphasizing strong balance sheets, durable competitive advantages, and the ability to generate strong cash flows. This approach has historically outperformed during times of high policy uncertainty, and we believe our portfolio will continue to perform well during periods of uncertainty.

Conclusion

Market corrections and bear markets are challenging, but they also create opportunities for disciplined investors – like us. As always, we remain steadfast in our commitment to guiding our clients through uncertainty with a steady hand, helping them stay on course to achieve their goals.

If you have any questions or need further assistance, please do not hesitate to reach out to us.