As many of you may know, I have spent a good deal of my time away from the office coaching my two son’s baseball and hockey teams over the years. I’m told there was a brief stint of “coaching” soccer in there as well, but the trauma of attempting to wrangle a dozen 5-year-olds that maybe better resembled free-range goats is somehow blocked from my memory. It can be easy to train yourself on some of the principles of being the coach of a youth sport. Be positive and encouraging. Demonstrate good sportsmanship. And above all, help make it safe and fun. Now throw in a highly competitive environment, high expectations from parents and varying levels of interest and skill-levels among the players and sticking to those principles can demand a steely resolve.
Like most character traits, resolve is developed over time and improved only by flexing it in the times that it’s challenged. There have been many times over the years that my resolve to be positive and demonstrate good sportsmanship has been challenged. Through each of those experiences, enduring the failures and proud of the successes, I believe my resolve has improved. I also believe a stronger resolve wasn’t attainable any other way.
For many of you, we know your resolve is being challenged in many ways right now. Emotions are high and rightly so. We are witnessing abrupt and dramatic changes in our country. Whether you agree or disagree with all, some, or none of the current administration’s actions, the pace and volume of change has been alarming.
As it pertains to your financial security, there are so many factors at play that it has been very difficult to understand what to expect in the days, months and years ahead. There is vast complexity in attempting to come to a determination on what the current administration’s policy agenda will do to the economy and capital markets. In such situations, there may be a tendency to seek narratives that help to explain what to expect. While these narratives may often be well-intentioned and given in earnest, they often downplay or overlook countervailing factors and are delivered with an excess of conviction.
As an example, President Trump has begun to impose tariffs on select U.S. imports. One of the prevailing narratives as it relates to tariffs is that the result will be inflationary to U.S. consumers. While there is the potential for tariffs to become inflationary, a direct correlation between tariffs and inflation is not a given. Mr. Trump imposed tariffs during his first term, but it wasn’t until the supply and demand shocks amid the pandemic that inflation surged. There are obviously a multitude of additional factors that need to be considered as well. A reduction in government spending, another priority of the current administration, could be considered deflationary. Yet, the Federal Reserve may act to reduce interest rates if the economy begins to show signs of weakening, which may in turn be inflationary.
My point is not to add to the stress you may be feeling by overwhelming you or trying to confuse you. Instead, it is to communicate that while it may be natural to seek a narrative that makes sense amid heightened uncertainty, your investment strategy presumes that a true narrative doesn’t exist or is impossible to identify. Your investment strategy is developed with the expectation that markets can be especially unpredictable and volatile at times, but that over time stock prices rise.
Your investment strategy also relies on your resolve over time. When markets are sanguine, it can be easy to be true to your investment strategy. As I’m driving my son to a practice, it’s not difficult to remind myself of the principles of coaching youth sports. But resolve gets tested when markets become chaotic and near-term volatility increases. Or when players show up to practice unmotivated or distracted. It becomes very difficult to suppress the fear of losing and the desire to act in such situations. Giving in and taking action that deviates from your investment strategy may provide temporary relief from those feelings, but soon transitions into the anxiety of when and how to return to that strategy.
For many, the present situation adds an additional component of angst, which is the method Mr. Trump has undertaken to impose his agenda. Some of these methods challenge the principles on which our government was formed. The bold actions taken by Mr. Trump are deeply concerning for many Americans in a way that may not have been experienced before. Resolve is now being tested because of heightened market volatility as well as a staggering adjustment to the modus operandi in Washington and what its implications may be for the future.
It can feel like the current situation is different than others we’ve endured. It certainly is, but it’s important to acknowledge that there are different circumstances that accompany each period of heightened volatility. The constant is that as uncertainty increases, markets become more volatile. As uncertainty ebbs, markets stabilize. A desire to seek helpful narratives that explain what’s happening may lead us to the media, which may further fuel pessimism and anxiety. Below is a study of Google searches for “CNBC” compared with S&P 500 Index performance. The blue line represents the value of the S&P 500 Index, and the red line represents Google searches for “CNBC”. As you can see, there’s a correlation between poor market performance and CNBC searches.
None of us are immune to what’s going on in the world at the moment and our message of maintaining resolve with your investment strategy in no way should be interpreted as a reflection of our comfort level with the present situation. We are also not trying to downplay the current state of the markets. Uncertainty, whatever the cause, will significantly impact market volatility. However, this does not mean that investors should abandon their long-term investment strategy. Despite short-term fluctuations, the long-term trend of the stock market has historically been upward, and we believe it will continue to be so in the future. We believe a strong resolve during periods of uncertainty can be what separates successful long-term investors from those who constantly wrestle with and agonize over market timing decisions.
Chart 2 illustrates that while market volatility and a steady stream of negative news can challenge your resolve, reacting by making sudden changes to your portfolio may harm your long-term investment returns.
Should market volatility persist or not, we will continue to employ a disciplined, long-term focused investment strategy on your behalf. This includes rebalancing activity that essentially sells investments that have meaningfully appreciated and buys those that are at more attractive values. It includes maintaining a balance in investments that are expected to be more stable for shorter-term cash needs. And it includes regularly reevaluating investment opportunities, risks, and our expectations for how different types of investments correlate with each other to compose a well-diversified portfolio. We also spend a great deal of time analyzing what’s happening in the markets and in the economy to evaluate the potential long-term risks and opportunities.
While we hope this letter is helpful in communicating our response to the present market volatility, we understand that it may not directly address your financial situation or answer specific questions you may have. Please know that we are always available to you, particularly during challenging markets. When my resolve gets tested as a coach, I have learned to turn to another coach, preferably the one with the least amount of smoke coming out of their ears and talk through the situation. In the moment, it may not feel as good as chewing out the player, but it doesn’t leave me feeling regretful and disappointed later at missing an opportunity to stick to my principles when they were challenged.
Gratefully yours,
Steve Dixon, CFA®
Investment Manager
Dana Brewer, CFP®, Bridget Handke, CFP®, Damian Winther, CFP®, Rachel Infante, CFP®, Kimmie Moehring, CFP®, Brayden Kelly, BFATM, Kayla Berceau, CFP®
Chart 1: “The Price of Panic.” Hartford Funds, 6 March 2024, www.hartfordfunds.com/insights/investor-insight/investor-behavior/media-replay/the-price-of-panic.html. Accessed 10 Mar. 2025. Google Trends/Factset, 12/21.
Chart 2: Equity returns are represented by the S&P 500 Index. Bond returns are represented by the Bloomberg Long-Term US Treasury Total Return Index. Reactionary returns indicate the results of an investor who invested in S&P 500 Index, moved 100% into 90-Day T-Bills each time the market dropped 30% and then moved 100% back into S&P 500 Index two years later. Balanced returns are represented by 50% S&P 500 Index and 50% Bloomberg Long-Term US Treasury Total Return Index. Cash returns are represented by 90-Day T-Bills. “The Price of Panic.” Hartford Funds, 6 March 2024, www.hartfordfunds.com/insights/
investor-insight/investor-behavior/media-replay/the-price-of-panic.html. Accessed 10 Mar. 2025. Ned Davis Research, 12/23.
Opinions expressed are not intended as investment advice or to predict future performance. No independent analysis has been performed. Investment decisions should not be based on information in this letter since the information contained here is a singular update, and prudent investment decisions require the analysis of a much broader collection of facts and context. All information is believed to be from reliable sources, however we make no representation as to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Asset allocation, which is driven by complex mathematical models, should not be confused with the much simpler concept of diversification. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. Rebalancing may be a taxable event. Before taking any specific action, be sure to consult your tax professional.