Update on the Markets:
| Index | 1st Quarter 2025 | Full Year 2025 |
|---|---|---|
| S & P 500 (Large US Stocks) | (4.27%) | (4.27%) |
| Russell 2000 (Small US Stocks) | (9.48%) | (9.48%) |
| FTSE All-World ex-US (International Stocks) | 5.05% | 5.05% |
| Barclays US Aggregate (Bonds) | 2.78% | 2.78% |
April 2025
Key takeaways
► Stocks down. Bonds up.
► Policy uncertainty dings confidence
► Inflation remains sticky
► Consumer sentiment sags
► Diversification is key
Maintain perspective
Remember, maintaining perspective is key. A quote from famous investor Benjamin Grahm (The Intelligent Investor) comes to mind:
“In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”
It’s not easy, but it’s essential to ignore short-term uncertainties in order to pursue long-term financial goals. Maintaining a sense of perspective is especially important today. Shifting political winds, economic policy changes, geopolitical developments, declining consumer sentiment, and persistent inflation have all created an atmosphere of uncertainty.
The mood has shifted. The market is reacting to a spate of bad news. It’s not just about Trump’s tariffs. Remember that the S&P 500 reached a high on February 19 despite being aware of Trump’s tariffs. Since then, several disappointing reports have piled on the bad news: the erratic nature of tariff rollouts, stubborn inflation, declining consumer sentiment, and the Fed’s comments about holding off on rate cuts.
The S&P 500 index entered correction territory (a 10% decline from a recent high) on March 13; however, other asset classes have performed relatively well. International stocks are up 5.05%. Bonds are solid – up 2.78%. Additionally, bonds resumed their role in supporting your portfolio when stocks falter. The historically low correlation between stocks and bonds is back. When inflation began to rise in 2022, stock prices and bond prices (bond yields and prices move in opposite directions) moved up and down in tandem. Now, bonds counter stocks.
Despite the recent decline, it’s important to remember that stocks are significantly up from their low in 2022. The S&P 500 is up around 60%, and the Nasdaq 70%. While it’s too early to announce an “All-Clear” for US stocks, history shows that buying after a 10% correction has often been prudent. The risk of a recession and a bear market— a decline of 20% or more — is present, but a bear market seems unlikely. A recession is not guaranteed either. Don’t forget: Remember, for every seller, there’s a buyer. Opinions vary. Not all investors can be sellers. Market winners constantly change. Energy, healthcare, and financials are way up, while tech and consumer discretionary are down. It may be the turn of international stocks and bonds to shine.
Sticky inflation
Inflation remains a problem. While it’s no longer increasing dramatically, it’s also not decreasing quickly. CPI eased to 2.8% in February 2025 from 3% in January, below forecasts of 2.9%. On the other hand, the core personal consumption expenditures price index, a key Federal Reserve inflation measure, showed a 0.4% increase in February, putting the 12-month inflation rate at 2.8%, both of which were higher than expected. Inflation exceeds the Federal Reserve’s official long-term target of 2.0%.
US CPI March 1, 2024-February 1, 2025
The effects of persistent inflation travel far and wide in our economy:
- Will the Fed still cut rates later this year?
- How will Trump’s tariffs (think auto parts) lead to increased inflation?
- Will stubborn inflation (think eggs) further sour the consumer’s mood?
- Will corporate earnings overcome the twin hits of inflation and tariffs?
- And how will all of this affect the stock market?
Diversification is more important than ever!
Given the current market conditions, diversification is more critical than ever. It’s not about predicting the future but about being prepared for it.
After years of US stock dominance (think Mag 7), this year proves the wisdom of diversifying your assets beyond US stocks. International stocks are up 5.05% year-to-date. The German DAX index has risen by over 18% year-to-date, and the Hang Seng index is up almost 16%. Leaders change constantly. No one asset class outperforms every year. However, diversification doesn’t guarantee that your portfolio will never decline. Diversification involves creating a more resilient portfolio that can withstand various market headwinds. A more robust portfolio also enables you to remain calm and avoid trading irrationally. You can focus on long-term financial goals and sleep better at night.
What to do?
Get used to feeling unsettled.
This year will be rocky, with all kinds of uncertainties swirling about:
| Positives | Negatives |
| ● Solid US economy ● Strong, stable labor market ● A possible peace deal in Ukraine ● Fed rate cuts later this year ● Lower gas prices | ● Sticky inflation ● Possible recession ● US stocks not cheap ● Consumer pessimism ● Stretched consumers |
One I didn’t add: Lower investor/consumer confidence. Is it a positive or negative? Lower consumer confidence can lead people to cut back, resulting in lower sales and, consequently, lower corporate profits, which is detrimental to the economy. Investors souring on the market may sell, dragging stocks down. On the other hand, the best time to buy stocks is when everyone is bearish. Is the correction over? Is it time to buy? I will add to large growth stocks as their prices decline further. And I’m sticking with bonds as they offer attractive yields.
Take a deep breath. Think long-term. Have a plan.
Remember, try not to get caught up in short-term volatility. Stick to your investment strategy and remain focused on your long-term financial goals.
Thank you for your trust and confidence. Please let me know if you have any questions or comments.
Sincerely,
Henry
Henry Gorecki, CFP®
HG Wealth Management LLC
401 N Michigan Ave, Suite 1200
Chicago, IL 60611
312-723-5116
