2025 Q2 Market Outlook
At the start of 2025, many of you may recall in our previous market outlook where we introduced a central theme of being nimble and prepared to maneuver with your investment approach this year. That message continues to ring true as we navigate an increasingly unpredictable market environment.
A Strong Start, Then Volatility
The new year started with high valuations across indices, especially due to some of the large tech companies. Additionally, considerable uncertainty tied to the incoming U.S. administration set the stage for a likely return of volatility in the markets. Despite a solid start to the year, markets began to pull back in March. Notably, this drop occurred before any official tariff announcements were made, underscoring those high valuations that had already primed the market for a correction. When tariff headlines hit, they added fuel to the fire. About half of the market drop between the highs in mid-February to the lows of early April came before the news, and the rest followed.
Prepared for the Storm
A thoughtful investment approach is rooted in analysis and preparation, not reaction. It is key to not chase market trends or speculate. Instead, it is vital to focus on long-term returns through proactive risk management. This year has clearly demonstrated the power of that philosophy.
Thoughtful, tactical, adjustments based on risk/reward analysis in anticipation of potential volatility can help protect investment portfolios.
Some of the areas that have helped for risk management year to date include:
Managing cash positions, which buffer against short-term drops and allow investors to capitalize on emerging opportunities
Looking to commodities, in which many have generally performed well and can act as a hedge against market volatility
Diversifying an allocation from overvalued tech stocks into more stable companies with strong financials, many of which have quietly delivered positive returns this year
Surprisingly, while the S&P 500 is down, primarily due to its heavy weighting in struggling, mega-cap tech stocks, defensive sectors like consumer staples and utilities are up year-to-date at this point in April of 2025. During these volatile times, strategic, tactical shifts to strengthen resilience have been imperative and will continue to be throughout the year as events unfold.
As we kick off 2025, we are optimistic about where things are headed. That said, we expect this year to come with surprises. The theme for 2025 is to allocate assets effectively and be ready to pivot. It may not be as simple as buying into a broad asset class and watching the gains mount up, instead we believe each of the broad categories mentioned above will require a thoughtful approach, investing specifically in the assets that will provide opportunity and reduce risk. In addition, markets move quickly and in 2025, we expect the ability to pivot, while still maintaining a long-term perspective, is going to be extremely important to take advantage of opportunities and to manage risk effectively. There may be some volatility that peeks its head in 2025, but with the proper allocation and the ability to maneuver quickly you may find great opportunities ahead!
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What to Watch Next: Tariffs and Global Strategy
Recent reports from The Wall Street Journal suggest the U.S. may be exploring tariff negotiations with allies to counter China. While the outcome remains uncertain, it is a reminder of how swiftly markets can recover when policy winds shift.
This environment underscores the importance of balance. We remain cautiously optimistic, expecting modest gains by year-end, but we also recognize this likely will not be the last bout of volatility. And with every swing comes a potential opportunity.
Stay Nimble and Disciplined
A long-term investment approach remains critical: don’t react emotionally to market drops. Stay the course. We saw the dangers of panic firsthand during the height of tariff concerns, followed immediately by a 12% rebound in just one day.
Instead, we recommend preparation and a methodical approach to investing including:
Establishing defensive positions before volatility strikes
Keeping emotions out of investment decisions
Identifying long-term opportunities in down markets
Investing thoughtfully is a risk/reward tradeoff. By identifying the right risks early, investors can dampen market swings and position portfolios to weather the storm.
This year, the markets have shown the importance of a nimble investment strategy. It is important to remain long term focused but to understand risk/reward tradeoffs in the current environment. Seeking opportunities, avoiding too much risk, and not panicking when the market stumbles is critical. A strong balance of tactical defense and long-term offense will allow investors to weather the storm should the market show signs of volatility again.
That said, we know these times of uncertainty can be challenging and are always here to answer your questions. Please do not hesitate to reach out to our team below with your concerns!