Navigating Market Volatility
The post-election stock market rally, which saw the S&P 500 rise 7.5% and the Nasdaq gain 10.3% from November 4 through February 19, has now reversed. Both indices have given up those gains, with the Nasdaq officially in correction territory—defined as a 10%+ decline—while the S&P 500 is just 2% away from entering correction territory.
Market participants are pointing to tariff concerns and a slowing U.S. economy as key drivers of the recent decline. While uncertainty remains around the timing and implementation of potential tariffs, these comments from J.P. Morgan’s David Kelly have resonated with investors:
“The trouble with tariffs, to be succinct, is that they raise prices, slow economic growth, cut profits, increase unemployment, worsen inequality, diminish productivity and increase global tensions. Other than that, they’re fine.”
Economic Growth Concerns & GDP Estimates
Fears of a slowing U.S. economy have gained traction among investors. The chart below is from the Atlanta Federal Reserve which posted an update to their first quarter 2025 GDP estimate.
Its initial expectations of 2%+ Real GDP growth to start the year were revised down to a 2.4% decline. This is not an official forecast, but it is a running estimate of real GDP growth based on several economic data releases including housing statistics, manufacturing data, inflation, and sales data for the current measured quarter. On the surface this looks concerning, but when you look at the components of the GDP forecast you can see the entire decline can be attributed to a decline in net exports. We conclude that the revised downward GDP estimate is entirely due to businesses pulling forward imports before tariffs are implemented.
Fundamentals Remain Strong
Despite market volatility, several key indicators point to continued economic resilience:
Private Payrolls Growth: The economy added 151,000 jobs in February, reflecting ongoing labor market expansion.
Household Debt Sustainability: Debt service payments as a percentage of disposable income remain below pre-COVID levels.
Delinquency Rates: Only 3.5% of outstanding debt is in some stage of delinquency, well below both pre-COVID and pre-financial crisis levels.
While some of these metrics have softened from recent highs, we view this as a normalization rather than a signal of an imminent recession.
Putting Market Volatility into Perspective
Markets tend to react swiftly to shifts in economic data, and corrections are a natural part of every bull market. As history shows, the stock market has endured periods of volatility while still delivering strong long-term returns.
Since 1987, the S&P 500 has averaged annual returns of 10%, despite an average intra-year decline of 14.4%.
The index has posted positive annual returns in 28 of the past 37 years (75%), underscoring the importance of staying invested through market fluctuations.
Staying Focused on What Matters
Economic conditions will inevitably evolve, but our investment approach remains unchanged. We stay focused on what we can control—ensuring that your portfolio aligns with your financial goals, risk tolerance, and time horizon.
We remain disciplined in allocating capital to high-quality businesses with durable business models and strong balance sheets—companies that can navigate various economic environments and thrive over the long term.