Quarterly Client Letter: Q1 2025
A tariff is a tax imposed by one country on the goods and services imported from another country to influence it, raise revenues, or protect competitive advantages. Governments impose tariffs to raise revenue, protect domestic industries, or exert political leverage over another country.
– Investopedia.com
On February 19th, the S&P 500 stock market index closed at an all-time high. At that point, the index was up +3.95% for the year. From the high, stocks fell into a steady decline and ended the quarter with a negative return. Bonds, on the other hand, as represented by the Aggregate Bond Index, had a nice quarter, providing attractive diversification away from stocks.
Coming into 2025, after two impressive 20%+ years in a row, our core expectation for U.S. stocks included a lot of volatility. From that perspective, outside of any U.S. policy decisions, it’s not surprising to see stocks making big swings. Historically, double digit pullbacks in the stock market are a fairly regular occurrence, even in bull markets. Additionally, as we entered the quarter, the stock market’s valuation metrics, such as the price/sales and price/earnings ratios, were stretched to historically demanding levels.
From another perspective, the seeds of uncertainty in our economy and financial markets were sown as the new Trump administration began to discuss and implement its tariff policies. On February 1st, President Trump signed an executive order imposing tariffs on Canada, Mexico and China as a pressure point to stop the flow of Fentanyl into the United States. As we exited the quarter, all eyes were directed to the event that was dubbed by the administration as “Liberation Day” on April 2nd.
The Beginning of the 2nd Quarter and the Official Launch of a Global Trade War
Liberation Day has now come and gone. The increased size and breadth of tariffs announced on April 2nd, along with the wider scope of potential changes for consumers, businesses, international trade and financial markets clearly spooked investors. Starting April 3rd, there was a three day mini-crash in the S&P 500 that hit the year-to-date low on April 7th. Two days later, on April 9th, President Trump put a ninety day pause on reciprocal tariffs for seventy plus countries (excluding China) and indicated he wanted to cut some deals. The S&P 500 ended that day up an impressive +9.5%. As I write this, on April 11th, the S&P 500 is down (-8.46%) on the year.
Uncertainty is also a feature of economic slowdowns and recessions. Uncertainty acts as a driver of indecision and delay. For consumers, they may choose to save rather than spend. Businesses may choose to reduce hiring or scale back future investments. Investors may choose to get more defensive.
At some point, the uncertainty may start to show up in the economic statistics, and we will see what policy adjustments the administration will make.
In the meantime, investment decisions still need to be made, and it is important to work within an objective framework. It is an environment in flux, and even doing nothing is a choice.
At Peak, when uncertainty is high, we focus on our strengths to help our clients. We are here to help you build and maintain financial security through planning and appropriate asset allocation. We focus on matching your investment allocations with your future cash flow needs. We allocate money to cash equivalents and bonds to provide for short and intermediate-term cash needs, and to stocks for growth to maintain purchasing power over long periods of time. We know what we own and why we own it, so in turbulent market periods we have the conviction to maintain positions and build on new opportunities for the future. We strive to communicate well and focus on your personal goals and objectives over time.
We hope this letter finds you and your family well. We appreciate your business, and we continue to work hard to earn the trust that you have placed in us. Please let us know if you have a friend or a family member who could use our assistance.
John McCorvie, CFA
Advisory Services offered through Peak Asset Management, LLC, an SEC registered investment advisor. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This content is developed from sources believed to be providing accurate information and may have been developed and produced by a third party to provide information on a topic that may be of interest. This third party is not affiliated with Peak Asset Management. It is not our intention to state or imply in any manner that past results are an indication of future performance. Copyright © 2025 Peak Asset Management
