Q2 Newsletter - 2025

Investing is a marathon, not a sprint. This quarter, we have a few great charts to share on a wide range of topics, including the growing consumer uncertainty, the foolishness of forecasting, the value of diversification, and a couple of reminders of why we encourage long-term thinking.  

Navigating the Maze of Trade Policy Shifts

In the traditional chicken game, a driver usually swerves to prevent an accident. In this case, however, the odds of all sides emerging fully unscathed are minimal. Recent actions in Q1 such as restructuring government agencies, reducing federal deficits, and engaging in trade disputes have introduced a new shift and uncertainty to financial markets.  We are not here to plant a political flag but rather report on current market events. Investors are assessing whether these disruptions will have temporary or lasting effects. It’s early, but there are three main ways this could play out—and knowing the possibilities helps us prepare for what’s ahead. Our base case is the outcome will fall in between the ‘fat tails.’

  1. Worst Case Scenario – Recession and Bear Market (historically occurs every 4-5 years): If the tariffs stay in place long-term, with the goal of shifting production back to domestic sources, we could see higher prices for everyday goods, rising inflation, and economic strain for households.  For decades, U.S. companies have relied on sourcing inexpensive materials and outsourcing labor to international markets, optimizing costs and efficiency.  However, as the focus shifts toward revitalizing domestic manufacturing and employment, challenges may arise for companies and consumers. Multiple countries and trading partners could retaliate creating headwinds for our companies and our consumers. This may lead to a recession and sharp market declines. While it’s an extreme outcome, it reminds us why a strong financial plan and strategy is so important—it’s about being ready for anything and investing based on our personal cash needs, risk preferences, and time horizon. 
  1. Best Case Scenario – Economic Growth and Market Resilience: This could be a strategic move to encourage better trade deals with other countries. If agreements happen quickly—say within six months—it could lead to lower interest rates, avoided recession, and stronger trade terms that benefit domestic businesses and consumers. Recently, a few countries have taken steps to reduce or eliminate tariffs on U.S. goods, aiming to strengthen trade relations:
  1. Canada & Mexico: Excluded from most recent tariff announcement
  2. Israel: Israel announced the removal of tariffs on U.S. products to reinforce its long-standing alliance with the United States.
  3. Vietnam: Vietnam has committed to reducing tariffs on several U.S. goods, including liquefied natural gas (LNG) and automobiles.
  4. India: India has expressed openness to lowering tariffs on U.S. imports, particularly in sectors like gems, jewelry, and pharmaceuticals.
  5. Japan: Prime Minister Shigeru Ishiba reported optimism that talks with the US are moving in the right direction. 

***Source: Nick Mordowanec –MSN Money  https://www.msn.com/en-us/money/companies/list-of-countries-considering-lifting-tariffs-on-the-us/ar-AA1CeOPE

  1. Mixed Outcome – Mild Recession, Market Consolidation, and Steady Recovery: Negotiations between trade partners may span over the next several quarters. While eventual success is possible, the interim effects—such as supply chain disruptions, reduced corporate investments, and weakened consumer confidence could still lead to a mild recession. In this scenario some countries will negotiate more favorable trading terms for the US and other countries will retaliate with higher tariffs. We could see new trading treaties and alliances unfold.  US companies that are adaptable, innovative, and resilient could fare well from their competitors in this environment. This scenario highlights the fortitude of markets and the potential for a steady recovery once agreements are finalized on a country-by-country basis.

CRISES ARE NORMAL (THINK LONG-TERM): 

While not everything on this chart is a crisis, most are. Yet, despite nearly constant crises throughout the world over the last fifty years, the stock market has mostly thrived through it all, at least from a long-term perspective. That’s not to say that we know how the market will perform in the near term. We don’t. But all that we’ve overcome throughout history should provide some hope and confidence that the market will continue to do what it has always done. (Source: First Trust)

MARKET VOLATILTY – THE TOLL WE PAY TO INVEST:

Since 2009 we have had 26+ 5% stock market corrections.  Investors that play the long game don’t get caught up in the day-to-day noise or the next hot-off-the-press news item.  They’ve been rewarded tremendously over the last 15 years to stay the course. Market fluctuations are a natural part of the investing process.  (Source: Charlie Bilello Creative Planning) 

IGNORE THE FORECASTERS: 

When uncertainty is high as it is today, it’s natural to seek insight from experts that is often offered in the form of a forecast. How much will the stock market fall? How long will it last? What will happen with interest rates? The only problem with forecasting is that nobody seems to be able to do it very well. Or maybe, not at all. The chart below offers the best visual evidence we’ve seen that illustrates the inability of supposed experts to know what the future holds. More specifically, it shows the various year-end market forecasts for eleven of the most renowned investment houses and the market’s actual year-end value. As you can see, in every year since 2016, the S&P 500 has finished the year either above the highest forecast or below the lowest forecast. When you consider the time and resources dedicated to this charade, it’s incredible that they’ve missed the mark so badly for nearly a decade straight. This fact alone should forever disavow us of any prescience these experts might claim to have. (Source: Man Group)

Q1 2025: IT TURNS OUT THAT U.S. STOCKS ARE NOT INVINCIBLE: 

For anyone who might need a refresher on the value of diversification and why we advocate for it, this chart might be helpful. For the last few years, we’ve heard many investors question diversification based on the assumption that the U.S. will continue its stock market dominance into perpetuity. While it’s still possible that the U.S. outperformance will continue, the first quarter might be a shift in the tide as U.S. equities are currently lagging international equities by a record amount.

DIVIDENDS & BUYBACKS ARE COMING OFF A FRESH RECORD:

In 2024, S&P 500 companies returned about $1.6 trillion to shareholders in the form of dividends and buybacks, which is a new record. One noteworthy observation from the chart below is the stability and growth of dividends, given that we’ve endured two bear markets (2020 and 2022) and two negative return years (2018 and 2022) over this time. As long-term investors, if we want to encourage sanity when it seems like everything is going off the rails, we’d be wise to focus on the earnings and dividends of our great companies, as opposed to stock prices. (Sources: Chart: Axios; Returns by Year: NYU; Bear Markets: Yardeni)

GLOBAL PROGRESS CONTINUES (THINK BIG PICTURE): 

For all the uncertainty in the world, there is one big trend worth paying attention to, and that is real GDP growth for many of the world’s largest economies. Do we want to invest with the trend or against it? Global expansion and GDP growth is happening across the globe.  (Source: Goldman Sachs)

Throughout our investing lifetimes, the only constants have been change and countless legitimate-sounding reasons to sell. But history has shown that any decision to sell over this period could very well have been an irrevocable mistake, as the market continued to move forward despite all the unknowns. It’s important to remember that just as good decisions compound forever, so too do mistakes. 

STP Raymond James

Leadership: Tyler Westphal CFP® & Chris Connelly CFP®

Email STP@RaymondJames.com

Office 651.641.0620‍

275 3rd St. South

Suite 303

Stillwater, MN 55082

Raymond James Financial Services Inc., Member FINRA/SIPC

Investment Advisory Services are offered through Raymond James Financial Services Advisors, Inc. Raymond James STP is not a registered broker/dealer and is independent of Raymond James Financial Services.

Disclosures:

Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of the authors and are subject to change. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. The indexes mentioned are unmanaged and cannot be invested into directly. No investment strategy can guarantee your objectives will be met. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment decision. Material is provided by Money Visuals LLC, an independent 3rd party, not affiliated with Raymond James.