Year-to-date review
At the beginning of 2025, the economic outlook for investors still looked good even considering three straight years of powerful returns. As inflation cooled, the Fed had cut rates three times in 2025. More were expected in 2026. The economy was accelerating as the tariff fiasco faded from view. Earnings were expected to continue to grow. Things looked good. Of course, in investing, things look good right up until they… don’t.
Iran’s decades of provocations and persistent nuclear ambitions finally went too far. U.S. and Israeli forces struck, hitting a wide variety of targets aimed at Iran’s government and defenses. Surrounding countries were drawn into the exchanges of missile and drone attacks. The knock-on effects of these actions were well known. Oil prices surged higher in what became the biggest disruption to world energy markets since the 1970s. The sudden uncertainty caused a dramatic resetting of expected future returns.
Ok, enough of that. We know our clients watch the news. What about the numbers? As usual, many investors, both large and small, bolted for the exits. Bond prices also sold off as oil-induced inflation threatened the prospect of further rate cuts. As March wore on, the decline continued. On March 26th, the NASDAQ index, home of the big tech names, fell into correction territory for the quarter. A correction is a decline of 10% or more from recent highs. The Dow followed the next day. The broader S&P 500 fell to its worst quarterly decline in four years with a loss of 4.3%. While we are, of course, taking these events seriously, corrections are not uncommon. Since 1950, a correction has occurred in 55% of all calendar years.
Perspectives
There was ample reason for caution and concern. There was also reason for discipline and quiet optimism. In the final days of March and into April, when it looked like the hostilities had no end in sight, both sides began seeking a ceasefire. By the date of this letter, markets recovered and were mixed for the year. Almost immediately, there were reports of breaches of the ceasefire and locked negotiations. Stay tuned.
We are here and ready
We take anything that threatens our client’s capital and long-term goals seriously. We have taken steps to prepare. We do our best to build risk-aware portfolios. We understand your tolerance for volatility. We inquire about future cash needs and prepare for them. This is done in advance of shocks and instability, not in response to them.
It is a pleasure to serve you, your family and your goals. Active communication is still key, particularly in times like these. Feel free to reach out. We are happy to help or just here to talk.