BY STRATEGIC ADVISERS INVESTMENT TEAM — FEBRUARY, 2025
Market Conditions
We believe the U.S. economy continues to expand. Bouts of volatility during this phase of the business cycle are normal. However, historically, stocks and bonds have risen as the U.S. economy grows.
- U.S. stocks experienced some volatility in early February, driven by uncertainty on tariffs and debates around the growth trajectory of companies tied to artificial intelligence (AI) research.1 During the sell-off, international stocks and bonds experienced less volatility than U.S. stocks, underscoring the importance of diversification.2
- The Labor Department reported that 143,000 jobs were added in January, and the unemployment rate dipped to 4%.3 The job market remains a potential source of strength for the U.S. economy.4
- Earnings have shown signs of growth by over 10% during the 4th quarter, based on over 370 companies that reported results so far. The outlook for corporate profit growth remains healthy for 2025.5
- U.S. manufacturing showed signs of expansion for the first time since 2022 as orders for goods and services increased due to consumer demand.6 This may support further strength in the job market and could bolster the economy.
- Inflation ticked up in January, with the U.S. consumer price index up 3.0% for the year, which is close to its long-term average. Recent inflation trends may lead to limited interest rate cuts by the Federal Reserve in 2025.7
- Tariff news is likely to remain fluid for months to come. Meanwhile, the U.S. and China have imposed tariffs on each other's goods. Tariffs may lead to bouts of volatility and add some uncertainty on global trade. However, from an investment perspective, international stocks remain less expensive than U.S. stocks and their earnings are expected to grow.8
What it may mean for your portfolio
We believe the U.S. economy continues to experience growth. However, investors have also experienced market volatility in recent weeks, driven by several news headlines around tariffs, innovation in AI, and political developments in D.C. While these headlines likely led to questions for some investors, markets have largely been steady. We believe staying disciplined through these near-term events may help investors reach their financial goals.
Tariffs: We believe this situation may remain fluid for months to come. It is difficult to know how large tariffs may be, how long they will last, and what products they will apply to. Therefore, rather than react to evolving tariff situations, investors may benefit instead from having a long-term strategy. We believe our diversified portfolios, with exposures to a wide range of global stocks and bonds, are well positioned for this environment. Furthermore, our investments in areas like commodities, real estate, and TIPS may provide some buffer for our clients from inflation concerns stemming from tariffs.
It may also help investors to remember that news headlines don’t always directly lead to presumed market outcomes. For example, many investors may believe that international stocks could be at risk from tariffs. However, so far this year, international stocks have kept pace with U.S. stocks. This includes investments in Canada, Mexico and China, which have been more directly impacted by tariff discussions so far.
Innovations in AI: Individual companies that are involved in developing new technologies have often experienced bouts of volatility as investors can change their views on the long-term growth outlook for various companies as breakthroughs come over time. That’s why we invest in a diversified mix of global stocks related to innovation, rather than just a few popular names, which aims to provide a balanced and potentially smoother investment experience for our investors.
The New Administration: There have been numerous news headlines coming out of D.C, which has often been the case when a new presidential term begins. It may help investors to remember that historically, stock markets have usually experienced gains in the first year of a president’s term. Markets have also tended to experience similar growth under both democrat and republican administrations. Sticking to their long-term financial plans despite political news headlines may help investors reach their financial goals.
Outlook
As investors have already seen this year, periods of volatility are possible as policy shifts take place and uncertainty remains on inflation and global trade. Overall, we believe it is important to keep potential policy discussions in perspective and not let them dominate long-term investment decisions. Historically, economic growth and corporate profits have been more significant drivers of market performance than policy measures. While we will closely monitor policy shifts, our focus will remain on assessing the health of the economy and the outlook for the companies in which we’ve invested. Looking ahead, some analysts anticipate that the U.S. economy and corporate profits may show continued growth in 2025. At the same time, we remain prepared to adjust client accounts, if needed, as final policy measures come to pass.
Make a plan, stick with it, and stay invested
Market conditions can change quickly. Historically, the market has sometimes rallied even as news headlines may have felt discouraging. We aim to guide our clients through market conditions, including the ones we have experienced this year. As a result, we have maintained healthy exposure to stocks, even through bouts of market volatility. We believe that staying invested through varying market conditions can ultimately help you reach your financial goals over the long term.
