Market Outlook and Commentary Q2 2025
Market Outlook and Commentary
2025, Second Quarter
Confidence During Uncertainty
We’ve experienced a volatile market and an onslaught of headlines since the US Government’s tariff announcement on April 2nd. While the market will continue to adjust as time goes on, it can feel necessary to take action. Before doing so, it’s important to remember the plans and strategies that you’ve put in place.
Market corrections and downturns are expected
As much as market downturns may be painful to experience, we know with certainty that they will happen, and we plan for those times. In fact, the chart below from First Trust's Market's in Perspective, March 2025 may help ease emotions, as you and your portfolio may have weathered similar storms in the past.
Diversification can help you weather the storm
When discussing investment strategies, it’s nice to hear about possible returns and gains, but as we often say, we don’t live in the land of rainbows and unicorns, and therefore need to prepare for downturns and building in protection where needed. We never know when, or to what extent, a market correction will take place, but we do plan for them. If you would like to review your current strategies and investment portfolio, or you just want to catch up with your advisor, please give us a call.
No one has a crystal ball
Establishing rules for yourself and your investments is a topic that comes up often with our clients who also enjoy DIY investing. The thought here is that we don’t know what might happen, and you don’t know how you may react, so these rules can serve as a way to make rational decisions during times when you may not feel rational. However, it’s important to remember that no one has a crystal ball and can predict what will happen in the future, and what the best course of action to take will be. That includes us, and that includes you as well. We can tell you one thing for certain, we would avoid any advice from someone who claims to know what will happen, and we would caution you to do the same.
First Quarter in Review
Equities
During the first quarter of 2025, we saw plenty of movement in the market. Questions about trade policy and federal government layoffs created uncertainty among investors. You may have noticed a reversal of some of the trends we felt in 2024. We saw growth stocks fall, and value stocks rise. Similarly, international stocks gained speed, while US stocks adjusted to a new political climate. The changing of trends is a good reminder that diversification can help you mitigate volatility.
Fixed Income
Bonds have historically been used to soften the volatility you feel in your portfolio. However, in 2022, many bond funds didn’t provide the protection investors were hoping for. The first quarter of 2025 tells a different story, though. Positive returns for many bond funds and bond indexes are helping smooth out the volatility as investors had hoped.
Monetary Policy
The Federal Reserve is tasked by Congress with the goals of supporting maximum employment, and stable prices, among other responsibilities. In an effort to reach those goals, the Fed continues to seek an inflation rate that averages two percent overtime. However, moving the needle, while seeking stability, isn’t a simple process.
The Fed refrained from rate cuts during the first quarter of 2025. However, the recent tariff announcement may cause the Feds to reevaluate their plans for the remainder of 2025, as consumer spending may be impacted by uncertainty.
Market Outlook for Second Quarter
While we would love to provide a definitive roadmap for the next quarter, the reality is that the scenario changes rapidly, and several factors are always at play. What we can predict is an evolving economic environment that investors will experience in different ways, based on the strategies in their portfolio.
As the economic situation changes, please feel free to reach out to your advisor to discuss the strategies you have in place, and the purpose each strategy serves. We are continuing to monitor changes daily, and are working with our asset management partners to remain informed on the latest research and analysis each day.
Sources:
https://www.morningstar.com/markets/q1s-biggest-lesson-investors-diversification-works