Happy Friday! It's always a happy Friday, even if stocks are painful this week.
I wrote most of our quarterly commentary just before Liberation Day on April 1st, and now we see its impact. In the past two days, the stock indexes has dropped nearly 10% in response to aggressive new tariffs. While many believe these tariffs are Trump's negotiating tactic and may be temporary, they are already causing disruptions. Businesses face uncertainty in their supply chains and strained international relations, and in an already overvalued market, this kind of policy whiplash fuels even more volatility.
Stay Invested
One of the biggest mistakes investors make is jumping out of the market during downturns and waiting for the "right time" to get back in. The problem? That perfect moment never feels obvious until it’s too late. Market timing is nearly impossible, and missing just a few key days can greatly impact returns. For example, if you had invested $10,000 in the S&P in 2014 and stayed invested through two bear markets, your balance would have grown to $27,856. But if you missed the 10 best market days? That number shrinks to just $15,255. Volatility is normal, and long-term investors who stay the course come out ahead.
Top 5 Stories of 2025 (So Far)
- Tariffs Shake Trade Relations – Trump's higher-than-expected tariffs could be the story of the century, shocking the world. Businesses and countries are scrambling to figure out how to respond.
- Geopolitical Moves – President Trump has called for the U.S. to reclaim control of the Panama Canal and to acquire Greenland for its strategic and economic value.
- BlackRock’s Major Acquisition – The investment giant purchased ports on both sides of the Panama Canal for $23 billion, reducing Chinese influence.
- Tesla’s Decline – Tesla’s stock has declined by over 35% this year due to weakening sales, price cuts, and Elon Musk’s political involvement.
- Security Leak – The Editor-in-Chief of The Atlantic was mistakenly added to a Signal chat where U.S. officials discussed upcoming strikes on Houthi rebels.
Performance – Diversification is Working
The first quarter was challenging for U.S. stocks, particularly large-cap tech and small-cap equities. However, international markets and bonds have fared better. Our diversified retirees have hedged well in a rough first quarter, highlighting the benefits of asset allocation.
Tariffs: A Tax on Trade and a Source of Volatility
Tariffs function as a tax and contribute to market uncertainty; however, they are not the primary driver of stock fluctuations. The more significant issue remains high market valuations. While some argue that rapid technological innovation justifies higher valuations, history suggests that economic fundamentals, monetary policy, and valuation levels ultimately dictate long-term market trends. As we move into the second quarter of the new administration, we will closely monitor the market impact of Trump’s “Liberation Day” on April 2, which triggered retaliatory tariffs and could further shape economic conditions.
Stock Market Valuations: Stretched but Not Broken?
Market valuation metrics, such as the Buffett Indicator and the Shiller CAPE Ratio, suggest that stocks remain expensive relative to historical standards. Meanwhile, models that compare stock earnings to bond yields indicate that stock returns are at their lowest relative to bonds since the dot-com bubble.
The S&P 500 is highly concentrated in a few large-cap stocks, making it vulnerable to sharp declines if those companies underperform. First Trust projects the S&P 500 to end 2025 around 5,200, a 7% decline from current levels. However, even at that level, stocks would remain expensive unless earnings growth accelerates or interest rates fall. Investors have grown accustomed to “buying the dip,” but a market pullback wouldn’t be surprising given today's valuation levels.
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About the Author
Noah Schwab CFP® is a financial advisor in Spokane, Washington, specializing in helping retirees with 401k Roth conversion strategies.
- Fiduciary. No commission, no insurance products
- Offering investment management and financial planning
