Portfolio Update – May 2025: Key Adjustments & Our Current Outlook

As part of our ongoing commitment to proactively manage your investments and navigate the ever-changing market landscape, we recently made several tactical adjustments to your portfolios. We believe in keeping you informed every step of the way. Here’s a summary of these key changes and the thinking behind them, aimed at ensuring your financial plan remains robust and aligned with your long-term goals.

Key Adjustments We’ve Made:

• Recalibrated Stock Exposure: After a strong market rally, we've slightly reduced our overweight position in stocks, bringing it to a more neutral stance. This allows us to lock in some recent gains and tweak down the level of risk in your portfolio given ongoing market uncertainties.

• Focused U.S. Stock Investments: Within our U.S. stock holdings, we've shifted emphasis towards what we believe are some of the strongest opportunities: large, stable 'mega-cap' companies and businesses in the Artificial Intelligence (AI) sector. We selected these for their strong financial health and what we see as powerful long-term growth potential.

• Increased International Value Stocks: We've added to carefully selected international stocks in developed markets that appear undervalued (known as 'value' stocks). This helps create a better balance between different types of international investments and moderates our exposure to any single region.

• Adjusted Emerging Markets Position: We’ve fine-tuned our investments in developing countries (Emerging Markets), particularly by reducing our underweight to China. This short-term adjustment aims to lessen the impact of sudden policy news from the region, though we remain cautious about its long-term outlook.

• Enhanced Bond Strategy: In the bond portion of your portfolio, we've enhanced our positioning to include protection against potential short-term inflation, increased global diversification, and slightly increased the portfolio's sensitivity to interest rate changes (expecting rates may eventually fall). This aims to guard against potential inflation surprises while also building resilience if economic growth slows more than expected later this year.

Our Thinking Behind These Changes:

The market’s quick recovery from the lows we saw in early April highlights how important it is to remain patient and disciplined, especially when things feel volatile. We viewed the intensity of that selloff as likely to be short-lived, driven more by immediate reactions to headlines and some forced selling, rather than a fundamental decline in the U.S.’s economic strength. Our decision to hold steady during that turbulent period was supported by earlier risk-reduction steps we took in February and strategic moves into assets like gold, which helped cushion your portfolio during the recent swings. The strong rebound in stocks since then has given us a good opportunity to now tactically manage risk, especially as uncertainty around trade policy and global events continues.

Looking ahead, we anticipate that the main themes influencing markets will be the interplay of trade tariffs, inflation levels, and economic growth. While new tariffs might cause some short-term price increases, we expect these to be temporary and not alter the longer-term trend of moderating inflation. We believe the greater risk from tariffs is their potential to slow down global growth if supply chains face challenges and business confidence wavers. Because of this, we anticipate the Federal Reserve will likely see tariff-related inflation as temporary and will proceed with some interest rate cuts in the second half of the year, especially if economic growth or the job market shows signs of slowing. This is also why we believe holding some longer-term bonds remains a valuable diversifier, as current market prices may not fully reflect the potential for lower inflation and growth risks down the road.

Our adjustments to the stock portion of your portfolio reflect a more balanced global approach. This isn't a sign of less confidence in the U.S. market, but rather a practical response to the unpredictable nature of trade negotiations and policy news. The recent strength in U.S. stocks allowed us to bring our allocations closer to long-term targets, recognizing both potential headwinds from trade and the benefits of global diversification at this point. Within Emerging Markets, by reducing our underweight to China, we're aiming to lessen the impact of often volatile policy announcements from the region, even though our long-term view on China remains cautious due to various structural issues. This change helps us avoid taking on geopolitical risks that don't offer a clear potential for reward.

Overall, our outlook is one of cautious optimism. We're taking the opportunity to secure profits from investments that have performed exceptionally well (like gold) and carefully managing risk across different regions and within our bond holdings, while still ensuring your portfolio is positioned to participate in potential market growth. By focusing on high-quality investments, broad diversification, and specific opportunities we have strong conviction in, we aim to navigate an environment where headlines can cause short-term swings, but underlying economic fundamentals appear to be holding up.

Your Questions Are Welcome

We believe these adjustments thoughtfully position your portfolio for the current market environment and the foreseeable future. As always, we are monitoring developments closely and will make further changes as needed to protect and grow your assets. If you have any questions about these recent adjustments or any aspect of your portfolio, please don't hesitate to contact us.