Investor sentiment has shifted sharply over the first quarter of 2025, driving the U.S. stock markets, as measured by the S&P 500 Index, lower by approximately 10%. The potential catalysts include artificial intelligence disruptions, markets navigating the Trump administration’s policies, particularly tariff policies, and revised GDP estimates. Their common thread is rising uncertainty.
After entering the year with high optimism on pro-growth policies and a belief that artificial intelligence stocks were invincible, markets are beginning to digest this discomfort. Investors with diversified portfolios have, in general, fared better. Many segments of the market that were underperforming the S&P 500 are holding up relatively well, such as value-oriented domestic stocks, international equities, and bonds.
As we frequently remind our clients, we do not place undue confidence in investment forecasts, even our own. In our experience, most forecasters tend to be overly certain in their predictions, while we take a more balanced approach. Our investment philosophy considers a wide range of scenarios so that client portfolios stay resilient during different market conditions.
While periodic rotations in the markets are painful, the long-term evidence shows that it is normal and healthy.
- The S&P 500 experiences an average annual decline of 14% yet has risen in 34 of the past 45 years (see Chart 1).
- Markets typically recover from uncertainty quickly. Bull markets have historically lasted much longer—and delivered stronger returns—than bear markets (see Chart 2).
- Market dislocations often serve as catalysts for shifts in leadership, creating new opportunities for previously overlooked sectors.
In our view, the biggest risk to long-term financial plans is overreacting to short-term volatility. Selling when markets decline might seem easy, but that neglects the second half of the equation: deciding when to reinvest. Even if an investor gets the timing right on a sale, history suggests that delays in redeploying assets can be costly (see Chart 3). To make matters worse, the investor may now have to pay taxes on the gains realized from the original sale. We encourage patience and discipline in times like these. We are continuing to evaluate what is happening in the markets and will take action only if necessary.
If you have any questions or would like to discuss your portfolio, please don’t hesitate to reach out.
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Source: S&P Dow Jones Indices.
This is for informational purposes only. Nor should it be construed as, specific investment, tax, or legal advice. Individuals should seek advice from their wealth advisor or other advisors before undertaking actions in response to the matters discussed. No client or prospective should assume the above information serves as the receipt of, or substitute for, personalized individual advice.
This represents the opinions of Focus Partners, may contain forward-looking statements, and presents information that may change due to market conditions or other factors. Nothing contained in this presentation may be relied upon as a guarantee, promise, assurance, or representation as to the future. Investing involves risk, including, but not limited to, loss of principal. This is prepared using third party sources considered to be reliable; however, accuracy or completeness cannot be guaranteed. Numerous representatives of Focus Partners may provide investment philosophies, strategies, or market opinions that vary. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
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