To Our Business Partners

NAVIGATING MARKET VOLATILITY

The stock market has certainly kept us on our toes these past couple of months, reacting sharply to the ebb and flow of tariff news. We’ve witnessed significant and rapid market swings – declines triggered by tariff announcements followed by equally swift rebounds as those tariffs were delayed or reduced. Currently, stock prices have largely recovered to their starting point for the year, though they remain below their previous highs. 

While some investors saw this volatility as an opportunity to “buy the dip” and have realized gains, at least for now, our perspective remains focused on valuation and the longer-term picture. The market has made a transition from extremely overvalued to simply very overvalued and now back again to extremely overvalued. Historically, from such levels future returns have been below average, sometimes significantly so. Despite all the market gyrations in recent years it should be noted that since the end of 2021, a time of significant overvaluation, returns have been below average, with most indexes producing returns in a range of 2-8% annually. 

The dilemma investors face: is it prudent to allocate significant capital to an overvalued market with the expectation that it will become even more overvalued? Short-term market movements are inherently unpredictable, and short-term gains can quickly become short-term losses. Overvalued conditions can persist for extended periods and the 1920’s and the 1990’s are often cited as examples, but while they produced extended market advances, they did not end particularly well. In the current environment we continue to focus on finding quality companies at attractive prices, an exercise that becomes more difficult in a highly valued environment.   

PORTFOLIO VALUATION 

As enumerated above, the snap back from the recent market pullback still leaves us with elevated valuations across the broader market. While we are beginning to identify a few more attractive opportunities within the stocks we closely follow, and have selectively deployed some cash, we generally require more compelling prices relative to underlying values to become more aggressive buyers. 

RECENT RESULTS

In April, most of the major stock market indexes we track experienced declines. The NASDAQ Composite was a slight exception, showing a marginal gain after a notable decline in March. Overall, the other indexes fell by 1-4%, with smaller companies experiencing the largest drops. 

Year-to-date, the indexes are down across a large range of 3-12%, with small-cap indexes again showing the most substantial declines. Over the past twelve months, market performance has varied. Large-company stock indexes have generated returns of 10-12%, while mid- and small-cap indexes have essentially remained flat. Our group* of portfolio holdings has performed within the return ranges we’ve discussed. 

*The group of “portfolio stocks” — our Equity Composite for the purpose of evaluating investment performance — consists of 19 stocks that are held in our clients’ accounts. Portfolios might hold some or all of these stocks, depending on investment guidelines unique to each client, the timing of purchases and sales, and start dates of accounts. The performance of this group of stocks is a good proxy for our equity performance but might vary widely among accounts. Of course, past performance is not necessarily indicative of future results.

We hereby offer to deliver to you without charge a copy of our current Form ADV Part 2, in accordance with the U.S. Securities and Exchange Commission’s “Brochure Rule.” Please contact us if you would like us to send you a copy.