In the past two weeks, we’ve witnessed a fluctuating stock market, primarily driven by shifting inflation expectations, the Federal Reserve’s decision to keep rates unchanged, evolving rhetoric around tariff policy, and a flurry of first‑quarter corporate earnings releases. The S&P 500 dipped below 4,900 early last week before rebounding to finish about one percent higher; the Dow Jones Industrial Average added roughly 1.2 percent; and the Nasdaq Composite advanced nearly 1.8 percent on renewed strength in mega‑cap technology names. These moves reflect investors’ responses to clearer signs of cooling inflation, a still‑patient but data‑dependent Fed, and cautious optimism that trade negotiations could resume despite fresh tariffs. Sector leadership has rotated briskly, and market volatility remains elevated, underscoring a market still prone to headline driven swings.
Notably, sectors such as Communication Services and Information Technology have delivered double‑digit year‑over‑year earnings growth in the first quarter, according to FactSet, benefiting from strong demand for digital advertising and AI‑driven hardware & software. In contrast, the Energy sector has seen earnings drop as rising OPEC supply pushed oil prices lower and squeezed margins. Financials have also underperformed, with banks feeling the pinch from a flatter yield curve that’s weighing on net interest income. As we move forward, it’s important to monitor how these trends evolve in response to shifting inflation data, tariff negotiations, and the broader trajectory of global growth.
We remain selectively constructive on U.S. equities but acknowledge a shrinking opportunity set as higher tariffs, elevated real yields, and geopolitical tensions squeeze corporate margins. After a strong run in property‑and‑casualty insurers, gains were harvested and redeployed into a diversified mix of international dividend payers — developed‑market companies with solid free‑cash‑flow cover and a track record of growing payouts — to temper volatility and broaden geographic diversification.
Small‑cap positions have been gradually trimmed, reflecting soft economic growth and an on-hold Fed. Capital released from those reductions is being directed toward alternative strategies — including market‑neutral and long-short hedge funds— to add diversification and seek returns less tied to traditional stock‑and‑bond cycles.
Within public equities, emphasis stays on businesses with pricing power, strong balance sheets, and secular demand drivers. We maintain a meaningful liquidity sleeve in short‑ to intermediate‑maturity Treasuries and money‑market funds, enhancing stability and keeping dry powder ready for attractive opportunities.
Looking ahead, the economic landscape presents both opportunities and challenges. Market watchers remain laser‑focused on three key indicators: GDP growth that is slowing, an unemployment rate hovering near four percent, and the path of inflation as the next CPI reading approaches. Policy uncertainty tied to tariffs, potential federal layoffs, and immigration changes is nudging the conversation away from an easy “soft‑landing” narrative toward the possibility of stagflation.
Interest‑rate futures now imply roughly a two‑thirds chance of at least one rate cut in 2025—up from about 50 percent in mid‑February—yet the Federal Reserve looks content to hold steady until the data compels action.
Our team remains committed to closely tracking these developments and adjusting our strategies as necessary to navigate the market effectively. We encourage you to reach out with any questions or if you’d like to discuss how your portfolio is positioned.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond and bond mutual fund values and yields will decline as interest rates rise, and bonds are subject to availability and change in price.
Investing in stock includes numerous specific risks, including the fluctuation of dividends, loss of principal, and potential illiquidity of the investment in a falling market.
Investing in foreign and emerging market securities involves special additional risks. These risks include but are not limited to currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.
Investment advice offered through Private Advisor Group, a registered investment advisor and separate entity from The Legacy Foundation.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
The Legacy Foundation and LPL Financial do not offer tax advice.
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