PFP - April 2025 Newsletter

Dear Clients,

The recent market uncertainty:

As we’re sure you’ve noticed, in recent days, the financial markets experienced significant volatility, primarily due to escalating trade tensions. The global financial markets are down sharply since Thursday of last week. We see four factors influencing the scenario:

1. Tariffs could have an impact on input costs for US and foreign corporations.
2. Corporate earnings estimates are likely to come down for 2025. Some CEOs have declared uncertainty about the impact of the tariffs and have paused future projects and hiring for now.
3. The Federal Reserve stated last week that they have no current plans to lower rates due to the potential inflation risks derived from the tariff policies.
4. Several respected financial firms have lowered their growth expectations for the US economy and have increased the probability of a recession in 2025.

Amidst the above (and we’re confident there’s an even longer list you could build), we wanted to point out a few positive factors to consider:

1. The impact of these tariffs is still largely unknown and could be less than some expect due to currency conversions and reduced demand resulting from higher prices.
2. This is a volatile situation, and the administration could tweak or adjust policies at any time, which could cause a fierce rebound in the equity markets.
3. Real interest rates (not the Fed Rate) have come down significantly, indicating that the Federal Reserve rate is too high and is pricing in reductions before year-end.
4. The current administration has plans to implement tax cuts by replacing the tax revenue with the income from tariffs.
5. The current administration also has communicated plans to deregulate and reduce the red tape around operating in many industries; this could generate a large increase in productivity and reduce government spending.

How we think about volatility:

While we don’t pretend to know exactly how this cocktail of uncertainty will play out in the coming weeks and months, we do know that such market movements can be unsettling. It's crucial to maintain perspective. As Warren Buffett wisely noted: "The stock market is a device for transferring money from the impatient to the patient.” A few examples to highlight this:

1. Intra-Year Losses Aren’t an Anomaly: Since 2010, the S&P 500 has experienced double digit losses within a calendar year nine (9) times. In that same period, the S&P has finished with negative calendar year returns only three (3) times. 
2. Time In vs. Timing the Market: While it can be tempting to pull out of the market to avoid bad days, one does not need to miss many good days to feel the financial impact – just missing the five best days for the S&P 500 over roughly the last four decades would return a portfolio at 35% less value than staying invested the entire time.

Our investment management strategy starts with you:

In volatile times like this, your personalized financial plan ensures we already have assets allocated to accommodate your short, mid, and long-term financial needs across our four-bucket strategy—Safety, Income, Growth, and Protected Growth. The Safety and Income buckets provide stability and liquidity, ensuring that your immediate financial needs are met without the necessity of selling assets during market downturns. Meanwhile, the Growth and Protected Growth buckets are structured for mid and long-term appreciation, incorporating safeguards where appropriate.

Opportunities that present with volatility:

Market volatility, while challenging, also presents us with opportunities. We are actively evaluating controllable strategies to enhance your financial position, such as:

1. Tax-loss harvesting to offset gains and reduce tax liability.
2. Roth IRA conversions while the market is trading at a discount to optimize future tax-free growth
3. Rebalancing portfolios to maintain alignment with your long-term financial goals. 

Rest assured, we are closely monitoring your accounts and the broader economic landscape to manage risks and identify opportunities wherever available. Our commitment is to guide you through these fluctuations with a steady hand and focus on your long-term objectives.

Friendly reminders around tax filings: 

As a reminder, the tax filing deadline for most households is approaching on April 15th. There are exceptions where filing and payments qualify for a May 1st deadline because of FEMA disaster declarations in 2024 from the southeastern storms – taxpayers in the states of Alabama, Florida, Georgia, North Carolina, and South Carolina qualify, as well as specific counties in other states. To confirm availability, you can follow this link where relief details are outlined by the IRS or check with your advisor.

Even if you are filing an extension, this is just an extension of time to file your return. Any balance due must be paid by April 15th or you will be subject to late payment penalties and interest. Please ensure you have gathered all necessary documents, including 1099s from investment accounts, K-1s if applicable, and any other relevant income or deduction statements. If you require assistance or have any questions regarding your tax documents, do not hesitate to reach out; we are here to support you.

Thank you for your continued trust. We are dedicated to navigating these times with you, ensuring your financial well-being remains our top priority.