Market Reality Check: From Liberation to Limbo

Let's get real about what's happening in our markets right now. April 2025 just went from zero to sixty with some serious trade policy fireworks, and if you're feeling a bit whiplashed, you're not alone. Time for a no-BS breakdown of where we stand and what it means for your investment strategy.

The Current State: Economic Plot Twist in Real Time 

Here's the deal - April opened with a bang. Despite a 90-day "tariff timeout," the U.S. went ahead and implemented:

• 10% universal tariffs

• Renegotiated trade deals with Canada and Mexico

• Auto tariffs

• Full-blown trade war with China

  
  

The bottom line? These policies are here, they're real, and without some serious course correction, they're cranking up recession risk.

Three Key Market Insights We Can't Ignore 

1. Tariff Escalation = Recession Red Flag Look, markets got excited about tariff delays, but don't let that fool you. Without policy offsets, we're looking at increased economic drag. Translation: higher recession probability.

2. The Economic Placebo Effect Here's what's coming: consumers will front-load purchases expecting higher prices later (hello, short-term boost). But when reality hits - higher costs, squeezed profits, nervous businesses - expect a pullback. It's like economic sugar rush followed by a crash.

3. Fundamentals Still Rule the Game Don't get distracted by the headline drama. Earnings growth, valuations, and bond yields still drive long-term returns. The Fed might pivot if growth falters, and if tariff revenue funds that "big, beautiful bill," fiscal policy could actually become supportive.

Market Performance Reality Check 

April's winners and losers tell a story:

• International equities extended their lead (MSCI EAFE up 4.6%)

• Mexico surged 13% as tariff attention shifted elsewhere

• U.S. small caps (Russell 2000) took a 2.3% hit

• Growth outpaced value across the board

  
  

Fixed income? Wild ride beneath the surface. Long-term yields spiked mid-month, then cooled back down. The 30-year yield ended where it started: 4.66%.

The Economic Shot Clock: Why Time Matters 

Here's your harsh reality: sentiment has shifted. Consumer expectations for business conditions are hitting levels we haven't seen since major downturns. When businesses plan for the worst, they don't hire. When profits compress, costs get scrutinized. Falling corporate profits? That's one of the most reliable recession predictors.

The pattern is clear: temporary economic bump from front-loading purchases, then the fade as higher costs and uncertainty kick in.

Three Possible Paths Forward 

Door #1: The Tweet Solution Could tariffs disappear as quickly as they appeared? Non-zero chance. Markets might look past the black eye and regain optimism.

Door #2: Negotiated Resolution Most likely scenario. Trade concessions get hammered out over time. Markets slowly recalibrate. Classic rebalance opportunity - sell what's up, buy what's down.

Door #3: The Oops Scenario Event-led correction becomes recession-led bear market. Asset prices decline sharply. But hey, opportunity often wears the mask of crisis - wider credit spreads could offer better entry points.

My call? Door #2 is base case. Doors #1 and #3 are a coin flip. As recession risk increases, the political pressure for Door #1 intensifies.

What Actually Matters for Your Portfolio 

Market Conditions: Current valuations, earnings trajectory, and fixed income yields have stronger connections to returns than trade policy alone.

Monetary Policy: The Fed's shown restraint, but history says they'll support rather than stand still if growth falters.

Fiscal Policy: Those tariff receipts? They'll likely fuel tax cuts, manufacturing incentives, or infrastructure spending. If it's "big" and "beautiful," markets could react favorably.

Your Action Plan: Stay Focused, Stay Ready 

Remember the fundamentals:

• Fragility - acknowledge what's uncertain

• Durability - focus on what endures

  
  

Bottom line: Don't let the noise drown out the signals. Your long-term investment strategy should be built on fundamentals, not headlines. Stay diversified, stay disciplined, and remember - market volatility creates opportunities for those prepared to act.

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Disclosures & Definitions

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Comparisons to any indices referenced herein are for illustrative purposes only and are not meant to imply that actual returns or volatility will be similar to the indices. Indices cannot be invested in directly. Unmanaged index returns assume reinvestment of any and all distributions and do not reflect our fees or expenses. Market returns shown in text are as of the publish date and source from Morningstar or FactSet unless otherwise listed.

• The S&P 500 is a capitalization-weighted index designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. • Russell 2000 consists of the 2,000 smallest U.S. companies in the Russell 3000 index. • MSCI EAFE is an equity index which captures large and mid-cap representation across Developed Markets countries around the world, excluding the U.S. and Canada. The index covers approximately 85% of the free float-adjusted market capitalization in each country. • MSCI Emerging Markets captures large and mid-cap representation across Emerging Markets countries. The index covers approximately 85% of the free-float adjusted market capitalization in each country. • Bloomberg U.S. Aggregate Index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. • Bloomberg U.S. Corporate High Yield Index covers the universe of fixed rate, non-investment grade debt. Eurobonds and debt issues from countries designated as emerging markets (sovereign rating of Baa1/BBB+/BBB+ and below using the middle of Moody's, S&P, and Fitch) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included. • FTSE NAREIT Equity REITs Index contains all Equity REITs not designed as Timber REITs or Infrastructure REITs. • Bloomberg Commodity Index is calculated on an excess return basis and reflects commodity futures price movements. The index rebalances annually weighted 2/3 by trading volume and 1/3 by world production and weight-caps are applied at the commodity, sector and group level for diversification.

Material Risks

• Fixed Income securities are subject to interest rate risks, the risk of default and liquidity risk. U.S. investors exposed to non-U.S. fixed income may also be subject to currency risk and fluctuations. • Cash may be subject to the loss of principal and over longer periods of time may lose purchasing power due to inflation. • Domestic Equity can be volatile. The rise or fall in prices take place for a number of reasons including, but not limited to changes to underlying company conditions, sector or industry factors, or other macro events. These may happen quickly and unpredictably. • International Equity can be volatile. The rise or fall in prices take place for a number of reasons including, but not limited to changes to underlying company conditions, sector or industry impacts, or other macro events. These may happen quickly and unpredictably. International equity allocations may also be impacted by currency and/or country specific risks which may result in lower liquidity in some markets. • Real Assets can be volatile and may include asset segments that may have greater volatility than investment in traditional equity securities. Such volatility could be influenced by a myriad of factors including, but not limited to overall market volatility, changes in interest rates, political and regulatory developments, or other exogenous events like weather or natural disaster. • Private Real Estate involves higher risk and is suitable only for sophisticated investors. Real estate assets can be volatile and may include unique risks to the asset class like leverage and/or industry, sector or geographical concentration. Declines in real estate value may take place for a number of reasons including, but are not limited to economic conditions, change in condition of the underlying property or defaults by the borrower. • All investing involves risk including the potential loss of principal. Market volatility may significantly impact the value of your investments. Recent tariff announcements may add to this volatility, creating additional economic uncertainty and potentially affecting the value of certain investments. Tariffs can impact various sectors differently, leading to changes in market dynamics and investment performance. You should consider these factors when making investment decisions. We recommend consulting with a qualified financial adviser to understand how these risks may affect your portfolio and to develop a strategy that aligns with your financial goals and risk tolerance