Clint Long
Vice President, Institutional Investment Consultant

It is safe to say that a major theme so far in 2025 is volatility. Everywhere. From wildfires to bitter cold temperatures affecting unemployment, from tariffs imposed to tariffs reneged affecting global trade dynamics and potentially inflation, from a record high close on the S&P 500 (2/19/2025) to hitting correction territory (3/13/2025) for the first time since December 2023 … volatility is everywhere. Fortunately, while challenging to stomach at times, volatility can create opportunities and at WealthSouth, we are well-positioned to capitalize on that volatility.

Let’s reflect to this time last year when we commented on a closing gap in performance of growth and value stocks. That trend proved short-lived in 2024 as growth outperformed value (measured by the Russell 1000 indices) by 19% at year-end. We can safely say for the first quarter of 2025 that trend was resurrected and held through the end of the quarter. Value outperformed growth by 12% (same indices referenced), a rather staggering variance considering the growth dominance (i.e., the Magnificent Seven stocks) of the last few years. This is where our positioning of value-oriented, dividend-paying stocks is helping to level out that volatility.

We had not had a 10% pullback in the S&P 500 Index since December 2023. Ten percent pullbacks occur, on average, one to two times per year so we would argue that we were due. This is one area where we see volatility as an opportunity to add to names that have been hit harder than others with cash on hand or from trimming positions that have increased beyond our recommended allocation.

Certainly, the unpredictability of foreign and trade policy has caused volatility in its own right. This, coupled with an aggressive domestic agenda involving immigration, taxes, deregulation and cost-cutting has fed uncertainty which the markets don’t handle well. Even the Federal Reserve made no changes at either of its meetings in the first quarter and stated it was awaiting “greater clarity” on policies before making the next move.

The consumer is feeling the need for “greater clarity” as well. Consumer sentiment fell to a nearly 2½ year low in March. This drop is most likely attributed to the anticipation of tariffs and their impact on inflation. We already feel the impact of price increases in certain areas (groceries, autos, homes/rents) but the expectation is that tariffs will affect more industries. The Fed increased its forecast of inflation (+2.7% YOY from 2.5% YOY) and revised down its forecast for growth (+1.7% from +2.1%) at its last meeting. But while tariffs may be inflationary and lead to demand impacts and, ultimately, growth impacts, could this also be an opportunity to reset the cycle? Demand drops so prices follow, eventually leading to demand pick up and growth pick up – part of the economic cycle. Slower growth is still growth, and it is our hope that the tariffs are not implemented at the threatened levels and will be partially rescinded as part of a negotiating tactic.

There is so much change happening all at once which makes it hard to predict the overall impact but there is support when studying long-term fundamentals. The overall trend of inflation is downward, the unemployment rate remains just over 4%, wage growth is at +4.3% (above inflation), we have a supportive Fed, and S&P 500 earnings expectations are +7.3% (per FactSet) for this first quarter. While these are positives, it is prudent to consider that risks are out there. This is where we believe volatility has created opportunity for us to remain both disciplined and diversified in our positioning. Where appropriate for accounts, we have diversified fixed income exposure that has been a positive contributor to performance this year and on the equity side, we remain committed to our value-oriented focus coupled with exposure to international developed and emerging markets (two areas that fared better than domestic markets in the first quarter) along with real assets of commodity and real estate exposure (also positive contributors).

We will continue to navigate 2025 together and as always, we appreciate your trust and confidence in our team. We wish you and your families the best and look forward to talking with and seeing you this year. Please reach out to us with questions you might have.