As we move further into 2025, many of the themes outlined in our 2025 outlook are playing out.
The market environment has grown increasingly complex, shaped by policy uncertainty, shifting global dynamics, and rising investor caution. A disciplined, active approach can help investors navigate through periods of volatility.
Policy Shifts and Market Volatility: A Risk We Flagged Early
We were early in identifying that a return to a more assertive trade policy could reshape the investment landscape. As the tariff narrative continues to evolve, markets are adjusting to potential implications for inflation, global trade, supply chains, and overall sentiment. While the rhetoric may echo previous cycles, the context today is materially different—higher valuations, reduced fiscal flexibility, and limited scope for stimulative policy all constrain the upside that markets might otherwise deliver.
A Weakening Dollar and the Case for Global Diversification
One of the key themes we highlighted—broad U.S. dollar weakness—is beginning to take hold. As the dollar softens and global fundamentals improve, international markets are showing renewed potential. Structural reform in Japan, targeted stimulus in China, and economic resilience in Europe are creating pockets of opportunity. Against this backdrop, a rotation—from U.S. dominance to broader pockets of value around the globe—is gaining traction.
Valuations and Earnings: A Time to Reset Expectations
Valuations across both growth and value segments of U.S. equities remain elevated, leaving little room for disappointment. Recent trade developments have rekindled volatility, especially in sectors exposed to global supply chains. While the full impact will take time to unfold, the market may be underestimating the longer-term effects of prolonged trade uncertainty on consumption, margins, and corporate earnings.
We see the latest trade measures not as an endpoint, but as an opening move in a broader negotiation. Still, the scale of the proposals presents a more challenging backdrop for global growth than many had anticipated.
This shift didn’t catch us off guard. Across our global and international strategies, we had already reduced exposure to companies heavily reliant on U.S.-bound exports. Instead, we’ve leaned into areas where fundamentals remain sound, but sentiment has turned excessively negative, particularly in select non-U.S. markets. This is not a top-down call, but a bottom-up view that sees more compelling risk-adjusted return potential outside the U.S.
Global and international equities focused on the financials, telecoms, and utilities sectors may be broadly insulated from trade-related headwinds.
Fixed Income: Patience, Flexibility, and the Value of Being Early
Markets may price risk efficiently, but they generally struggle with uncertainty, particularly when it creates self-reinforcing cycles of weaker sentiment and incremental pullbacks.
Anticipating these dynamics, we began paring back risk in our fixed income portfolios in late 2023, favoring duration while staying cautious on credit. At the time, this ran counter to market consensus—but as many peers took on additional credit risk for minimal incremental return, our more defensive positioning has proven well-founded.
This approach has preserved both flexibility and conviction, giving us the ability and the willingness to selectively add back risk as more attractive opportunities emerge. With spreads still tight but yields reasonably attractive, a patient, nimble, and risk-aware approach remains a prudent posture in a market not fully pricing in tail risks.
Soft or Hard Landing? Preparing for Either
The debate around a soft versus hard landing continues, and for good reason—successful soft landings are historically rare. Today’s environment includes fiscal strain, persistent political uncertainty, and the ever-present potential for geopolitical shocks.
Rather than predicting the path, we continue to prioritize preparation—staying diversified, valuation-conscious, and ready to act on dislocations as they arise.
Final Thought
In a year defined by volatility and complexity, active management matters more than ever. Our positioning has helped us avoid recent disruptions while keeping us ready to capitalize on evolving opportunities. As the year progresses, we remain confident in our approach and committed to helping clients navigate what comes next with clarity, agility, and conviction.
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