With the stock market down notably in the last few weeks, we thought it would be helpful to share our thoughts.
First, what is causing the current market decline? In a phrase, tariffs and federal spending cuts. We’ll cover tariffs first. Rightly or not, President Trump has been pushing aggressive US trade policy in the form of tariffs on Canada, Mexico, and China. We’ve said before that we don’t believe these tariffs will persist over the long run (or even the medium run) and that’s still our base case. That said, the volley of “tariffs on, tariffs off” has introduced uncertainty to the markets and led investors to seek shelter. Notably, bonds and international investments have performed quite admirably in 2025, and we’ve generally been pleased to see diverse client portfolios holding up reasonably well during this downturn.
At the same time, large cuts to the federal workforce are creating concern of higher unemployment that the rest of the economy won’t be able to absorb. We’re all for making the government more efficient and accountable, but uncertainty as to the scope and scale of these federal layoffs is indeed contributing to the stock market’s recent downward move.
While tariffs and federal spending cuts are very abnormal, let’s talk about what’s normal – market volatility. From its recent high on February 19th, the S&P 500 is down just over 6% through Friday’s market close, and another 2.3% as I write this on Monday 3/10. As swift or discouraging as that might be on its face, that kind of volatility is actually quite…normal. In fact, the S&P 500 averages a pullback of 5-10% three times per year! You might not remember but we had two of them in 2024. Additionally, according to some research, the maximum drawdown per year for the S&P 500 has averaged about 14% since 1980. In years that ultimately ended up positive, the max drawdown still averaged 11%. So, all of that to say, volatility is normal.
While there may be plenty of unusual headlines, perhaps more than usual from the political realm, we encourage you to breathe deep and find comfort in the normalcy of the market’s ups and downs. We work with every client to find an allocation that is appropriate for your age, goals, and time horizon.
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