3.5.2025

First, we need to set aside political leanings and look through the noise. There are some positive developments. There are also some negatives. In some cases, the problem might be the pace of change. Looking through this lens, what do businesses and financial markets want?

Businesses Want Low Corporate Taxes- Low taxes mean a company has more capital to reinvest and grow.

• With a Republican administration, the market is presuming an extension of the 2017 tax cuts- a clear positive for business.

Businesses Want Less Regulation- Government meddling is usually negative for corporate profits.

• Long–term, the reduction of bureaucracy is positive for businesses.
• Short-term, the rushed pace and chaotic nature of these reductions cause volatility.

Businesses Want Certainty & Stability- To make investments for growth, companies must be confident in their future.

• Are tariffs & trade wars a temporary negotiating ploy or a permanent fixture?
• Shifting alliances and unpredictable foreign policy are a difficult environment for global trade and investment.
• How can companies make long-term investment decisions in the face of volatility?

Adding up the positives and negatives, investors today are less sanguine about corporate America’s future. This less optimistic viewpoint is behind recent market volatility.

The good news?

Trump Put?

• Some analysts refer to the concept of a “Trump Put.” The idea is that if markets experience enough pain, the administration may walk back its most disruptive policies to stabilize investor confidence.
  • Midterm elections are just 20 months away. Republicans have a razor thin margin in the Senate and House. How much pain can Republican Representatives and Senators take?

Self-Inflicted

• The 2008 housing crisis was a massive imbalance in the economy and it took years for homeowners to de-lever and the economy to recover.
• The COVID-19 pandemic effectively shut down the global economy and caused a very steep recession. It took trillions of dollars in stimulus and a vaccine for the economy to recover.
• Recent volatility is self-inflicted. There is no massive imbalance depressing markets today. There is no health crisis. A swift recovery could materialize simply by reversing certain decisions.

Position of Strength

• The US economy is strong because the US consumer is strong.
  • Healthy labor markets, strong household balance sheets and record amounts of wealth have supported consumers.
  • Pent-up demand for housing and autos are catalysts for future consumer spending.
• A resurgence of inflation or dramatic weakening in the labor market are key risks we’re monitoring. There’s no guarantee that US economic strength continues, but we’re starting with a lead.

Cobblestone’s Durable Multi-Asset Approach

Long-term investing harnesses the power of compounding and helps get the odds on your side. But we also realize that to stay focused on the long-term, we must navigate short-term volatility. Taking a long-term view is uncomfortable at times. This is why, out of an abundance of caution, we emphasize durable, multi-asset strategies that provide diversification and better insulate our portfolios from turbulence.

For example, this year, US equities are down about 2%, while foreign equities are up about 4%.[1] Bonds and many alternative investments are also showing positive performance for 2025. Holding a diversified portfolio means our other investments dampen the negative effect of the equity market.

We’ve built durable portfolios designed to weather these moments. Short-term volatility is uncomfortable, but history shows that disciplined long-term investing leads to better outcomes. We remain focused on preserving and growing your wealth and we’re confident in the path ahead.

[1] From Bloomberg. S&P 500 Index 12/31/2024 – 3/4/2025 MSCI ACWI-ex US Index 12/31/2024-3/4/2025, respectively.

Disclosure:  Unless stated otherwise, views, opinions or forecasts expressed in this blog are those of the author and do not necessarily reflect those of the Adviser and/or its employees. The contents of this blog are distributed for informational purposes, and are not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Nothing in these communications is intended to be or should be construed as individualized investment advice. All content is of a general nature and solely for educational, informational, and illustrative purposes.

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