Markets Warm with the Weather – May brought a more constructive tone as trade tensions eased, lifting sentiment and encouraging a rebound in risk assets.

Fixed Income Buyers Remain Cold – While equities priced in potential fiscal stimulus, bond markets focused on long-term deficit risks, pushing yields higher across most of the curve.

Fed Independence Under the Spotlight – The Fed has held rates steady this year while calls from the Executive Branch grow louder to ease policy. Investors wonder yet again how independent the Fed truly remains.

Fed Structure Limits Political Control – Fed governors serve staggered 14-year terms and require Senate confirmation, but average tenure is only about seven years. While this structure gives presidents some influence, it falls short of control. This is especially true given that the full voting Federal Open Market Committee (FOMC) includes five regional presidents unaffiliated with the Executive Branch.

Imperfect Independence – Despite renewed debate around Fed leadership and independence, there is no current evidence to suggest investors should shift positioning. The Fed remains an imperfect yet vital anchor for monetary stability.

Tariffs have commanded much of our mental bandwidth recently, but several other forces remain equally, if not more, critical to market outcomes:

1. Market Conditions

2. Monetary Policy

3. Fiscal Policy

We believe our positioning coming into the year remains as relevant today as it did then. Fragility, Durability and the Age of Alpha help frame our positioning to weather both uncertainty and elevated volatility.

• Sweeping Import Tariffs Implemented – Beginning April 5, a 10% universal tariff will apply to all imported goods, with an additional tariff for countries running a trade deficit with the U.S. starting April 7. This move signals a broad protectionist shift in U.S. trade policy 

• Existing Tariffs Remain Intact – The new tariffs do not replace prior trade restrictions, such as the 2018 China tariffs, compounding the overall cost of imports for businesses and consumers. 

• Key Exemptions for North America & Select Sectors – Canada, Mexico, and certain industries (e.g., pharmaceuticals, autos) are exempt. 

• Historic Economic Impact – If fully implemented, these tariffs would increase the U.S. effective tariff rate from 2% to 20%, generating ~$640 billion in revenue, comparable to doubling corporate tax revenue. If we called a tariff a tax, this would represent the largest tax increase in modern U.S. history.

• U.S. Equity Selloff – The S&P 500 fell -5.6% in March and -4.3% for the quarter, its worst since 2022, as stretched valuations and concentrated leadership fueled volatility. 

• Mag Drag – Despite 61% of securities posting returns better than the index, AI concerns and a selloff in high-valuation stocks pulled down the market. Six of the “Magnificent 7” fell between -11% to -36%, underperforming the S&P 500. 

• Global Rotation to Stability – Investors shifted away from U.S. equities, favoring Europe and China. MSCI EAFE outperformed the S&P 500 by 11% for the quarter, its strongest lead since Q2 2002, while China gained 15% on stronger manufacturing data and renewed policy efforts. 

• Growth Scare – The Federal Reserve is expected to hold rates, while fiscal policy tightens. Tepid consumer spending and declining confidence add to economic growth concerns. 

• Growth Scare Hits Risk Assets – Weaker economic data, a patient Fed and shifting policy dynamics fueled slowdown fears triggering a broad selloff of U.S. equities, with defensive sectors outperforming.

• Growth Puts Spotlight on Valuations – High-valuation stocks fell more than peers, while value and defensive sectors led. Consumer staples outperformed consumer discretionary by 11%, while Treasuries rallied amid shifting markets sentiment.

• International Extends its Lead – EAFE took another step forward and added to its 2025 lead over the S&P 500, led by EU financial and defense spending along with a cooling of U.S. high valuation stocks.

As 2025 unfolds, we know many of you are feeling uncertain about the markets and what’s ahead. In this special update, we break down the latest trends, including stock performance, the impact of a weakening US dollar, and how we’re managing portfolios to stay resilient. Watch the video for a data-driven look at where things stand and how we’re helping you navigate the road ahead.