Market volatility has returned, driven by renewed tariff threats and policy uncertainty. The S&P 500 correction began in March and intensified post-"Liberation Day," but sharp rebounds, such as the 9.5% rally on April 9, demonstrate how quickly sentiment can reverse.

Economic fundamentals remain supportive, with low unemployment, steady wage growth, and stronger-than-expected early earnings. While consumer sentiment has dropped sharply, such periods have historically marked turning points in market cycles.

Equity markets are rewarding quality and diversification, with disciplined strategies focused on fundamentals and balanced exposure showing resilience amid shifting leadership and macro pressures.

Private markets and fixed income offer selective opportunity, with strong institutional demand for private credit, attractive bond yields, and improving conditions across industrial, multifamily, and digital real estate sectors

The first quarter of 2025 began on solid footing, with markets rallying into February on the back of resilient economic data and stronger-than-expected earnings. Volatility returned in March as the S&P 500 entered correction territory, reflecting renewed concerns about inflation, interest rates, and trade policy.

That volatility intensified following "Liberation Day" in early April, when a sweeping set of tariff proposals introduced renewed uncertainty around global trade and corporate profitability. While index levels have pulled back, the economic backdrop remains broadly supportive, with low unemployment, stable wage growth, and ongoing investment in future productivity.

Consumer confidence has dropped to historically low levels, with the University of Michigan’s Sentiment Index nearing record lows. The speed and depth of this decline highlight rising concern around inflation, trade tensions, and the broader economic outlook.

While such pessimism can be unnerving, it has often preceded market recoveries. In 2008 and 2020, similarly weak sentiment levels were followed by strong equity returns over the subsequent 12 months. Markets tend to be forward-looking, and extreme bearish sentiment often signals turning points—especially when underlying fundamentals begin to improve.

A strong reminder of how quickly sentiment can shift came on April 9, when a 90-day pause on proposed tariffs sparked a sharp rally. The S&P 500 rose 9.5 percent in a single session, its best day since 2008, as markets interpreted the announcement as a sign that trade policy remains fluid and potentially negotiable.

This year has already seen several powerful one-day rebounds, often emerging from periods of peak uncertainty. These events highlight a key principle of long-term investing: The best days in the market often occur during the most volatile times.

Staying fully invested through periods of market stress can be challenging, but history suggests it is often the most rewarding path forward.

While some see stagflation—a period of elevated inflation and sluggish growth—as a growing risk, we believe it is premature to declare a return to that regime. Today’s conditions, including anchored inflation expectations, low unemployment, and a more responsive Federal Reserve, suggest that stagflationary pressures may prove temporary, especially if trade policy becomes more predictable.

Tariffs may contribute to short-term inflation, but as prices rise, demand typically softens, creating a natural rebalancing. We view the recent uptick as a transitional adjustment rather than the start of a persistent stagflation cycle.

U.S. equities have corrected from recent highs, but valuations have adjusted, and investors are increasingly focused on fundamentals like earnings resilience and capital discipline in a more complex market environment. In this context, our factor-based strategies remain well-positioned, emphasizing high-quality businesses, global diversification, and thoughtful management of concentration risk.

We also see broadening capital investment beyond technology, as companies across sectors invest in automation, infrastructure, and productivity gains to adapt to a higher-rate environment.

International equities remain attractively valued relative to U.S. markets and may benefit from a weaker dollar and continued central bank easing abroad.

Meanwhile, Treasury bonds have been unusually volatile, influenced by shifting inflation expectations, fiscal dynamics, and evolving Fed policy. While markets anticipate rate cuts later this year, movement in longer-term yields—especially the 10-year—may have a greater influence on portfolio risk and asset valuations.

Private markets continue to offer valuable diversification:

• Global private capital fundraising exceeded $250 billion in Q1, according to Preqin, as institutions look for uncorrelated sources of return.
• Private credit remains attractive, offering floating-rate yields ranging from the high single digits to low double digits, depending on structure and risk.
• Stabilizing real estate values and solid demand are driving renewed investor interest in industrial, multifamily, and digital infrastructure assets.

Markets remain sensitive to shifting trade policy and inflation expectations, but the economic foundation is intact. Labor markets are healthy, corporate earnings continue to surprise, and consumer behavior remains broadly resilient.

Periods of stress can be unsettling, but they often give rise to opportunity. After a volatile start to the year, we believe a balanced mix of equities, income-generating bonds, and targeted private investments remains the clearest path to long-term growth.