March 22, 2025 Market Update

Stocks posted modest gains this week, breaking a four-week losing streak.  The advance was broad-based, with most sectors ending in positive territory.  The technology sector led the way, powered by strength in megacap names and ongoing enthusiasm around AI-related innovation.  Small caps showed signs of stabilizing, following that sector’s recent underperformance.

Bond yields and prices were mostly steady.  In remarks on Thursday, Fed Chair Powell reiterated that while inflation remains above target, the Fed still expects to begin cutting rates later this year, assuming inflation continues to trend lower.

The stock market’s recent volatility once again demonstrates how politics can impact markets in unexpected ways.  When government policy changes suddenly, it can cause investment portfolios to stumble because the impact the new policies will have on the economy, corporate profits, and markets is uncertain, and not yet reflected in the data sophisticated investors utilize when making investment decisions.

A common misconception is investors should strive to sell stocks when a market storm is brewing.  But successful investing doesn’t require eliminating volatility entirely.  Rather, the goal should be protecting principal from permanent losses while generating returns that allow you to achieve your financial goals.  The market will always test investors’ patience, but those who stay committed to a disciplined, systematic strategy tend to come out ahead in the long run.

Then again, accepting volatility doesn’t mean it should be ignored.  Managing volatility systematically can lead to better long-term outcomes, even if it means accepting lower short-term returns.  The objective isn’t to eliminate downturns—it’s to reduce the depth of declines, allowing for a faster recovery and, ultimately, higher compounded returns.

Of course, every bear market begins with a correction, and it’s impossible to know with certainty whether a pullback is just a blip in a bull market or the start of something worse.  As anyone who watches CNBC knows, even the best market strategists frequently disagree on where markets are headed next.

Investing would be easy if markets moved in a straight line.  But they don’t.  Volatility isn’t an anomaly.  It’s the price investors pay for long-term gains.  Markets fluctuate, sometimes violently, and while it’s tempting to think of volatility as risk itself, the real risk comes from making emotional decisions during those moments of uncertainty.

Staying the course when markets are struggling can be frustrating, but overreacting to short-term noise often does far more damage.

That’s all for now.  Have a great weekend and invest wisely my friends.