April 2025 KWP Newsletter
Staying Balanced in a Whirlwind of Headlines
Spring has arrived with its usual mix of sunshine and surprise showers—and the markets have followed suit. Much like checking the weather only to get caught in the rain, investors this season have had to adapt quickly to an ever-changing financial forecast. For long-term investors, these fluctuations are part of the natural market rhythm—an ever-evolving cycle that rewards patience, diversification, and perspective.
Perspective in Volatility: A Natural Part of the Market Cycle
As markets recalibrate in the second quarter of 2025, it's important to remember that volatility is not an anomaly—it’s a feature of a functioning, cyclical system. Historically, the S&P 500 experiences a 10% correction roughly every year and a more significant bear market about once every 5–7 years. These drawdowns, while uncomfortable, are part of the long-term landscape of investing and often create opportunities for repositioning and resilience.
What’s Driving the Volatility?
Markets are reacting to a confluence of factors: elevated interest rates, slower economic growth projections, and recent trade policy shifts, including new tariffs. While these developments can introduce short-term uncertainty, they are not necessarily indicative of long-term structural weakness. In fact, corporate earnings have generally come in above expectations, and many companies are well-positioned for a slower but still-growing economy.
A few key data points are driving sentiment:
- Economic Growth: The OECD has revised U.S. GDP growth projections to 1.6% for 2025, suggesting a cooling economy after a strong post-pandemic rebound. Slower growth isn't necessarily alarming; rather, it aligns with the Federal Reserve’s goal of guiding the economy to a sustainable pace amid inflation management.
- Inflation and Policy: Core inflation is expected to end the year near 4%, driven in part by supply chain adjustments and recent trade policy shifts. While above the Fed's target, the trend appears decelerating from 2022–2023 highs. Interest rates remain elevated, though pause or pivot discussions may gain traction in the second half of the year.
- Labor Market: Unemployment remains relatively low at 4.2%, though job creation has moderated. The labor market’s gradual cooling is seen as a necessary step toward price stability.
While the broader market has seen some pullback, certain sectors are currently outperforming, benefiting from ongoing trends and economic conditions. These include:
- Energy: With energy prices stabilizing and demand growth in key markets, energy stocks have been gaining traction. Companies in this sector are showing strong earnings as they benefit from higher commodity prices and more efficient operations.
- Healthcare: Driven by aging populations globally and innovation in biotechnology, the healthcare sector is seeing significant growth. Pharmaceuticals, medical devices, and health insurance stocks are performing well as healthcare spending remains strong.
- Consumer Staples: In periods of economic uncertainty, consumers tend to prioritize essential goods, making consumer staples (e.g., food, beverages, household products) a more stable investment. These companies have demonstrated resilience amid broader market volatility.
- Utilities: Known for their stability, utilities continue to offer steady performance, providing consistent dividend yields. As interest rates stabilize, the appeal of utility stocks, which are often seen as defensive investments, remains strong.
- Technology (Selective): While the broader tech sector has seen some volatility, specific areas such as artificial intelligence, cloud computing, and cybersecurity remain in demand. These sectors are poised for long-term growth as digital transformation continues across industries.
https://www.schwab.com/learn/story/stock-sector-outlook
Final Thoughts
Market pullbacks are never comfortable, but they are part of a healthy financial ecosystem. Long-term investors benefit from keeping perspective during turbulent periods. Just as the market doesn’t rise in a straight line, it rarely falls without eventual recovery. With fundamentals still broadly intact, this current phase may be less about crisis and more about recalibration.
*https://finance.yahoo.com/news/euro-advances-treasuries-sell-off-055911617.html
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