Dear Clients and Friends,
This year is proving to be quite challenging for clients and investors. 2025 has set a much different tone for financial markets and the economy than was experienced in 2024. The excitement and optimism we saw leading up to, and post-election day, has quickly given way to a level of uncertainty that we have not seen in many years.
Going into 2025, US financial markets experienced two consecutive years of extremely strong equity returns, inflation looked to be moderating, short-term interest rates were declining, and the excitement of Artificial Intelligence (“AI”) brought new hope for an industrial revolution that would propel the US economy and markets to even greater heights. Combined with the expectation of a more business friendly environment and lower income taxes, the future looked bright.
What has changed? The President and his administration have made it clear that executing on campaign promises is Job #1. Historically, extraordinary changes having the magnitude as those currently proposed by President Trump, have been addressed in a manner that has been considerate (to some degree) of the financial markets and economy. Is this time different? Only time will tell, but this administration continues to message that policy implementation will take precedence over any impact to the financial markets and economy. Thus, financial markets are desperately attempting to discount for the economic implications of such policies.
Fast forward to “Liberation Day” where the President recently announced proposed unprecedented tariffs at levels not seen since 1910. This has disrupted financial markets around the world as investors and Corporations attempt to assess the potential economic impacts. In addition to tariffs, the administration has equally ambitious (and potentially disruptive) goals of reducing the size of the federal government, and mass deportation, which is causing further uncertainty. Arguably because of this continuously increasing uncertainty, various economic data are beginning to show signs of slowing economic momentum.
Until we have more clarity, it is clear to us that volatility is here to stay for the foreseeable future. It is particularly important to remember that the existence of policy and economic uncertainty does not necessarily portend further economic deterioration. Periods of uncertainty and slow growth are quite common throughout history. If one thing is clear, it is that this is a very fluid situation where quickly changing messaging and policies can have a meaningful impact on financial markets and the outlook for the economy.
There are currently a multitude of possible “range of outcomes” as it relates to the direction of the markets and economy. Too many in fact to make reasonable assumptions about where we are headed from here. We will remain focused on these ever-changing policies and economic developments and how they inform our guidance on client portfolios and financial plans.
Please stay tuned for more updates via email, and do not hesitate to reach out to any of us on your team.