Spring 2025 Market Perspectives with Brett Carleton

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In preparation for writing this quarter’s newsletter, I went back and reviewed the year-end edition of Market Perspectives, and it felt like I had written that a year or more ago. So much information has come out of Washington these past 10 weeks, it’s been a challenge just to try and keep up with the latest. As mentioned in an earlier blog this year, I do not expect this trend will change, the real question is: will you allow this barrage of “noise” to influence your investment policy?

Since the election, investors around the world have been anticipating more pro-business, pro-growth policies here in the U.S., along with an extension of the current tax-code. If Congress does not pass new income tax legislation by the end of the year, the 2016 Tax Cuts and Jobs Act will expire - leading to one of the largest tax increases in U.S. history, which has the potential to be recessionary. This belief led to a run-up in equity markets through February, before some of this “noise” led investors to become more cautious. The volatility we have experienced in the first quarter of this year more closely resembles a “typical” market than the relative calm of the past 12 months.

Despite this, many asset classes are having a stellar year; for example, international stocks are up almost 10% for the year, Emerging Market stocks are up 5%, Real Estate is up almost 5%, and bond funds are all on pace for positive returns. With all the discussion around tariffs, no one could have predicted international companies would rally like they have. As we look at the data, and not the noise, this is one of those periods in time that reinforces the dictum that we must stay focused on what truly matters.

This quarter at Heritage, we did use the pull back in U.S. equity markets to do some rebalancing and even added a new position into the portfolio that focuses on profitability. Research at Dimensional Fund Advisor’s shows that more profitable companies tend to remain more profitable and outperform their peers over time. This is one way we manage market volatility, by adding to the positions that have come down in price. For some reason, equity markets are the only place where individuals load up on companies when prices are at all-time highs, then turn around and sell when prices are going down. Historical success supports exactly the opposite behavior.

As we look at the current state of the U.S. economy, many nations around the world would give anything to be where we are. Here are some highlights:

employment remains strong with real wages increasing,
inflation appears to still be coming down, along with consumer interest rates, which includes mortgages (There was a spike in housing starts in February as consumers appear to be adjusting to mortgages rates that are at a more “normal” level).
Hundreds of billions of dollars in planned capital investments here in the U.S., by both domestic and foreign companies.
Oil prices are down by over 20% from their highs of the past year, which has brought gasoline prices down along with it. Transportation costs are reflected in almost everything we spend our money on. This combined with lower input costs in manufacturing, can have a significant impact on lowering prices/inflation.

There is an old saying that has a lot of truth to it, “It’s all about the economy, stupid”, because it can be hard to stay focused on what’s important in our always on, hyper-stimulative world. We must stay focused on our plan and not get sidetracked by every “breaking” news story. Study after study shows that the more media a person exposes themselves to, the unhappier they are. Let us stay focused on what we can control and tune out all the noise.

Please share any comments you may have.

Brett S Carleton, CFP®, ChFC®