May 10, 2025 Market Update

U.S. stocks declined modestly this week, as investors adopted a more cautious stance.  Sentiment was weighed down by lingering uncertainty over trade and monetary policy developments.  The pullback reflects a combination of investor caution and Mr. Market’s uncertainty regarding recent developments.

The Federal Reserve’s Open Market Committee voted unanimously on Wednesday to keep the benchmark federal funds rate in a range of 4.25% to 4.5%, where it has stood since December.  “We think we’re in the right place to wait and see how things evolve,” Chairman Powell said during his post-meeting press conference.  This more dovish tone encouraged investors to buy bonds in anticipation of future rate cuts, which pushed yields modestly lower.

While the announcement of a U.S.-U.K. trade agreement initially buoyed markets, the deal's limited scope and the persistence of a baseline 10% tariff tempered enthusiasm.  Complexities surrounding upcoming U.S.-China trade talks coupled with Chairman Powell's cautious stance on future rate cuts amid inflation concerns, appear to be keeping Mr. Market on edge.

American exceptionalism is an investing thesis based on the idea that U.S. financial markets, corporations, and the broader economy will outperform those of other nations over time, owing to unique economic, political, and structural advantages.  That belief has largely held true over the past 15 years.  However, with international equities recently outperforming U.S. stocks by the widest margin in years, some investors are beginning to question whether the thesis still holds.

Several factors are fueling this skepticism.  U.S. equities—especially large-cap tech stocks—are trading at much higher valuations than their global peers.  Persistent fiscal deficits, a ballooning national debt, and increasing political polarization around monetary and fiscal policy have also raised concerns about long-term U.S. economic leadership.  Meanwhile, many international markets are closing the gap by enhancing productivity, reforming institutions, and deepening their capital markets.

Even so, we continue to believe that U.S. equities should remain the cornerstone of a globally diversified portfolio.  The structural strengths underpinning American exceptionalism—such as innovation, market depth, and entrepreneurial energy—may be overlooked in the current climate, but they haven’t vanished.  While past performance is never a guarantee of future results, it’s worth remembering that betting against the U.S. has never been a winning strategy over the long run.

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