“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Nobel laureate Paul Samuelson
March was not a kind month for investors. The stock market sell-off began in February and persisted in March, with all the US-based indexes we follow losing more than 4%. Overseas, the MSCI EAFE produced a mild negative return while the MSCI Emerging Markets Index was slightly higher. The CRB Commodities Index continued to rise, adding 2.52%. The Aggregate Bond index was flat, and the US Dollar Index dropped 4.79%.
All data as of 04/01/2025, Source: Wells Fargo Investment Institute. An index is not managed and not available for direct investment. Past performance is not a guarantee of future results. [Wells Fargo Investment Institute, Inc. is a registered investment advisor and wholly-owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.]
We are drafting our stock market commentary on April 4, 2025, following significant developments following the announcement by the President of the United States regarding new tariffs imposed on all of the country’s trading partners. Recognizing the potential implications of the announced tariffs on global trade dynamics and the domestic economy, we prioritized gaining an initial understanding of the emerging economic situation before proceeding with our analysis. By taking the time to assess the immediate reactions and impacts, we aim to provide informed and thoughtful insights into how this major decision may influence market trends and investor sentiment moving forward.
Is the Long-Term Trend Changing?
Last month, the answer to this exact question was, “we don’t know.” Since then, there has been notable deterioration. We are convinced that there has been a notable change in direction, for at least the near-term. Unlike some of the notable market selloffs that have happened since the start of the current bull market in 2009, this one is a direct reflection of a change in policy from the Federal Government, not a change in either the US economy or the fundamentals of Corporate America.
We also believe that perspective is essential. In the short term (Chart #1), the S&P 500 does not look good. The downtrend that started in late February has now entered a second move lower. Taking a step back and looking more long-term (Chart #2), the market has given back about half the gains since the bottom in October 2023. While this doesn’t feel good, and probably doesn’t feel like something that happens in the markets, it is not unprecedented. Periodically, selloffs of this magnitude happen every few years.
In our view, the S&P 500 is in a market correction but not a bear market. A bear market could be coming, but as of this writing, it is too early to tell for several reasons. First, and most obvious, is that the major indexes are not down 20% from the all-time highs set earlier this year. Second, and just as important, any changes in the economy and corporate earnings, at this point, are just speculation, not based on hard facts or fact-based analysis. In time, the implications for the economy and corporate earnings will become clearer. Finally, the policies that are causing the stock market to fall are not settled. The White House has indicated as such. All it would take for at least a short-term move higher in the markets would be positive news from the White House on tariffs.
Chart #1: www.stockcharts.com Data 04/05/24 – 04/04/25 as of 04/04/25. An index is not managed and not available for direct investment. MA 50 = 50-day moving average MA 200= 200-day moving average. Past performance is not a guarantee of future results.
Chart #2: www.stockcharts.com Data 11/01/21 – 04/03/25 as of 04/04/25. An index is not managed and not available for direct investment. MA 50 = 50-day moving average MA 200= 200-day moving average. Past performance is not a guarantee of future results.
What, Then, is Changing in the Stock Market?
It is very easy for investors to get very comfortable with what has worked in the recent past and assume that these trends will last forever and ever. Market leadership remains steady for long periods, only changing occasionally. For example, at the end of the bull market that started in August 1982 and ended at the peak in March 2000, aggressive growth funds and the largest technology companies were the only investments that most investors wanted to own. Small caps, value stocks, and international stocks were the last thing most anyone wanted to own. The technology sector accounted for more than 1/3 of the S&P 500 at the peak of the bull market cycle.
Today we see what may be a similar situation. As of this writing, the technology sector accounts for more than 31% of the S&P 500. In both cases, the growth of the sector happened in a bull market and was a result of the sector outperforming the benchmark for a sustained timeframe.
Now is not the time to make a mistake
As investment advisors, one of our key responsibilities is guiding clients toward sound decision-making. While everyone’s circumstances are unique, there are certain mistakes we find ourselves revisiting periodically. Based on our experience, the most frequent mistakes include:
- Panic Selling: Out of Investors often sell during market downturns, missing out on potential recoveries and long-term gains.
- Overconfidence: Many believe they can outperform professional investors or the market, leading to poor decisions.
- Emotional Investing: Allowing emotions, such as political beliefs or gut reactions, to drive investment choices can lead to suboptimal outcomes.
- Overcomplication: Complex strategies often fail compared to simple, disciplined approaches like asset allocation and indexing.
What Should an Investor Do?
In the face of a declining stock market, it’s natural for investors to feel uneasy. However, rather than succumbing to fear, this is an opportunity to revisit fundamental principles that drive long-term success. Here are two strategies to consider:
Embrace Investment Risk: Market downturns serve as a reminder that risk is an integral part of investing. Accepting short-term volatility is essential for achieving long-term growth. Historically, markets recover from dips, and staying invested helps ensure you don’t miss out on these eventual rebounds. Recognize that short-term losses can be a stepping stone to long-term gains. By staying the course, you allow your investments to compound and grow over time, leveraging the resilience of the market.
Embrace Diversification: Diversification remains one of the most powerful tools for managing investment risk. Instead of concentrating your portfolio in a specific sector or asset class, spreading investments across stocks, bonds, real estate, and international markets helps reduce exposure to individual risks. A diversified portfolio is better equipped to weather volatility, helping ensure that losses in one area can be offset by gains elsewhere. During a downturn, revisit your portfolio’s allocation to confirm it aligns with your risk tolerance and financial goals.
By combining these two approaches—accepting investment risk as a necessary part of the journey and maintaining a diversified portfolio allocated to your long-term goals—you position yourself to navigate a falling market with confidence and build wealth over time. Remember, staying disciplined and focused on the bigger picture is key to turning challenges into opportunities.
Final Thoughts
While short-term volatility can be unsettling for investors, historical context reminds us that market corrections are a natural part of investing. By avoiding reactive decisions and focusing on disciplined strategies like diversification and embracing calculated risk, you can position yourself for long-term success. As this situation evolves, clarity on economic implications and policy outcomes will provide greater insight into the road ahead. Until then, stay patient, cautious, and aligned with foundational investment principles.
If you would like to discuss your current strategy, or how to build such a strategy, Contact Our Team Of Financial Advisors Today!
On behalf of Magellan Financial, we would like to thank you for taking the time out of your busy day to take in our thoughts and opinions. If you found this helpful, please forward it to others. If you have any questions on the materials presented, would like to be added to our email list, or would like our help with your investments, we can be contacted at 610-437-5650 or via email.
Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.
Asset allocation and diversification are investment methods used to help manage risk. They do not guarantee investment returns or eliminate risk of loss including in a declining market.All investing involves risks including the possible loss of principal invested. Past performance is not a guarantee of future results.
Index returns are not fund returns. An index is unmanaged and not available for investment.
Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted index of 30 “blue-chip” industrial U.S. stocks.
S&P 500 Index: The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock’s weight in the Index proportionate to its market value.
MSCI EAFE® Index: The MSCI EAFE Index is designed to represent the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the U.S. and Canada.
Wells Fargo Investment Institute, Inc is a registered investment adviser and wholly-owned subsidiary of Wells Fargo Bank, N.A. a bank affiliate of Wells Fargo & Company
Robert I. Cahill, Partner Rob.Cahill@wfafinet.
Jonathan D. Soden, Managing Partner Jon.Soden@wfafinet.com
Cassandra Queen, CFP®,ChFC®, Senior Wealth Planner Cassandra.Queen@wfafinet.com
Susan C Schupp, MBA, Senior Wealth Planner Susan.Shupp@wfafinet.com