After months of uncertainty, the U.S. and China on Monday announced a major trade agreement, temporarily easing tensions between the world’s two largest economies. Under the 90-day deal, U.S. tariffs on Chinese goods will drop from 145% to 30%, and China will reduce tariffs on U.S. goods from 125% to 10%.
Though it is a short-term deal, this shift marks the first major de-escalation since the tariff hikes earlier this year.
Markets responded immediately, reminding us why staying invested is the best strategy: • The Dow Jones Industrial Average rose 1,044 points (2.5%). • The S&P 500 gained 2.9%. • The Nasdaq Composite jumped 4%.
These gains come after a sharp correction earlier in the year. From mid-February through April 8: • The Dow declined 16.1%. • The S&P 500 fell by 18%. • The Nasdaq Composite dropped nearly 24%.
Since bottoming on April 8, we’ve seen a powerful rally: • The Dow has recovered more than 12.5%. • The S&P 500 has climbed by more than 17%. • The Nasdaq Composite is up over 22%.
While volatility is uncomfortable, history shows that the market has a way of working through disruptions. Investors who remained steady through the selloff have been rewarded with a sharp rebound.
That said, let’s be clear: This is a point in time. Markets move daily, and no one knows where they’ll go tomorrow. This rebound may continue, it may pause, or it may even reverse. Nobody rings a bell at the top or bottom.
What we do know is this: Since 1926, the S&P 500 has ended the year in positive territory approximately 74% of the time. That means markets have been up nearly three out of every four years. That’s not theory — that’s nearly a century of fact, and long-term data remains our North Star.
While we remain optimistic about the rebound, we’re not assuming smooth sailing ahead. We’re not fortune tellers — we’re stewards. We didn’t panic when the market sold off. We stayed disciplined. And now, we’ll continue to be vigilant.
Our focus is on the long-term compounding of capital, not reacting to every headline or tick. We will monitor the landscape closely, manage portfolios actively, and make thoughtful, incremental adjustments where necessary.
We are not in the business of timing markets. We are in the business of helping you navigate them — with patience, clarity, and conviction.
The CD Wealth Formula
We help our clients reach and maintain financial stability by following a specific plan, catered to each client.
Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market.
We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.
It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.
Market uncertainty has become the new normal. As we wrote last week, the stock market has been extremely volatile. During the first three days of last week alone, the S&P 500 experienced nine intraday moves of 1% or more. The stock market is reacting to every policy announcement — positive or negative — from the White House.
These aren’t policy changes, but clarifications about what policies may be or their potential implications.
Stocks aren’t the only asset class experiencing higher volatility and downward pressure. The U.S. dollar has been hit hard, falling almost 5% in April and 7.3% from its peak in mid-January. This marks the worst start for the U.S. dollar index since 1990.
Large drawdowns are common for the U.S. dollar, but the speed of the decline is unusual. We saw a similar moves during the first year of President Trump’s first term and during the pandemic, but those drawdowns occurred over a much longer period.
The ICE U.S. Dollar Index
Source: Bloomberg, calculations by Horizon Investments, data as of April 17, 2025
Why has the dollar been losing value?
Wall Street originally anticipated that tariffs would boost the dollar. Traditionally, the dollar strengthens as tariffs sink demand for foreign products. Currency values rise and fall often in response to inflation concerns and central bank moves.
Over the last few decades, the dollar’s strength has helped keep borrowing costs down and has bolstered the U.S.’s position as the world’s leading economy and a major power player. With much of the world’s goods exchanged in dollars, demand for the currency has stayed strong, even as the deficit has ballooned.
This year, however, the dollar has weakened. The drop has raised concerns because it coincided with a spike in interest rates, which is an unusual event. Typically, when bond yields are higher than those in other countries, the dollar rises. During times of volatility, Treasury yields tend to fall, as U.S. Treasuries have been perceived as the “safe haven” investment amid market uncertainty.
However, this pattern did not occur in April. Investors instead have exited dollar-based assets, reacting to widespread tariffs and the belief that they could slow U.S. growth and potentially lead to a recession. As risk aversion rose globally, the U.S. appeared to be the source of risk, and investors sold dollar-denominated assets, further weakening the dollar.
A weaker dollar could limit how much U.S. interest rates fall. Foreign investors may not be as willing to buy U.S. Treasuries as they have been in the past, limiting the decline in yields.
We do not see the dollar losing its status as the world’s reserve currency. U.S. Treasury bonds are still among the safest assets in the world, and rising yields could boost their appeal.
While a weaker dollar threatens to increase the cost of tariffs for U.S. consumers and businesses, it also can stimulate the economy by making U.S. goods and services less expensive for the rest of the world. If the economic outlook stabilizes, one could expect the dollar to gain value and offset some of the tariff-related price increases.
The CD Wealth Formula
We help our clients reach and maintain financial stability by following a specific plan, catered to each client.
Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market.
We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.
It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.
Another week, another roller-coaster ride in the stock market. Volatility has stayed high since “Liberation Day” and the announcement of tariffs on multiple countries. The chart below shows the volatility index for the last month; it does not look that different from the pandemic, when we saw big market swings daily.
Big Swings
Volatility because of tariffs nearly matches what it was during the financial crisis and the COVID-induced recession.
Source: FactSet
The most recent culprit of market weakness was President Trump’s push against Federal Reserve Chairman Jerome Powell. Trump has repeatedly criticized Powell for not cutting interest rates fast enough and has made overtures about possibly firing him. On Tuesday, Trump said he had no intention to fire Powell, and the market responded positively Wednesday.
The Fed’s independence — specifically the ability to carry out its duties without interference from elected officials — is foundational to achieving economic stability. It is unlikely that the Fed will come to the market’s rescue (like it did in 2018 and 2020) because of worries that tariffs will be inflationary.
Understanding Market Volatility
Volatility reflects the amount of risk related to fluctuations in a security’s value. A highly volatile security can see its price change dramatically in either direction in a short period of time. A security with low volatility will tend to hold its value over time and not move much.
The Volatility Index
One of the preferred measures to gauge market volatility is the Volatility Index (VIX), a measure of forward-looking volatility for the next 30 days. Also known as the fear gauge, the VIX reflects the market’s short-term outlook for stock price volatility, as derived from option prices on the S&P 500. This index is not something that can be purchased like a stock or bond.
The higher the VIX, the more volatility in the market and the larger the market swings. The VIX is a good indicator of fear in the market. Less than a month ago, the VIX was trading at less than 20; the long-term average of the CBOE Volatility Index is around 19.5. After April 2, however, the VIX index surged to over 50, a level not seen since the height of the pandemic.
For reference, here is how the VIX often translates:
• 0-15: A certain amount of optimism in the market, as well as low volatility • 15-25: More volatility in the market, but nothing too extreme • 25-30: More market turbulence, and volatility is increasing looking forward • 30+: The market is highly volatile and extreme market swings are likely to occur
We find that when the VIX spikes, investors often want to sell or get out of the market. The market then experiences more wild swings like we are seeing today, and the fear gauge rises.
Instead of thinking about timing the market or selling out of equities, we want our clients to do the following:
1. Revisit your investment objectives and your financial plan. Longer-term objectives are made possible when taking an appropriate level of risk.
2. Maintain a longer-term mindset. Do not let market volatility or your emotions convince you to abandon your prudently designed, long-term investment plan. Short-term, reactive decisions can derail your plan.
3.Continue to contribute. Maintain your savings of cash according to your periodic investment plans, such as your 401K or dollar-cost averaging into your portfolio.
Volatile times in the market also present opportunities, such as tax-loss harvesting, dollar-cost averaging, increasing contributions to take advantage of lower prices, and potential Roth IRA conversions. The stock market seems to be one of the few markets where investors don’t want to buy at sale prices and would rather pay full price.
Resist the urge to time the market and look for a good sale!
The CD Wealth Formula
We help our clients reach and maintain financial stability by following a specific plan, catered to each client.
Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market.
We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.
It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.
Last week was a memorable one in the equity markets. The S&P 500 fell more than 10% for the first two days of the week — one of the worst two-day declines ever — only to be followed by a gain of more than 9.5% in one day, the third-best day since World War II.
Going back to 1945, the S&P has gained more than 5% in one day 25 times. As the table shows, more of those occurrences happened during a bear market (14) than in a bull market (10). Some of the largest daily gains in stocks came almost immediately after bear market lows and/or major corrections. This serves as a great reminder that when things feel bad in the stock market, a big day can happen quickly, so it is critical to stay invested.
Sources: Charles Schwab, Bloomberg, as of April 11, 2025. Bull and Bear markets classified as +/- 20% changes in S&P 500. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. Past performance is no guarantee of future results.
Last week, the S&P 500 was very close to entering into a new bear market (more than a 20% drop from recent highs). Intraday, the S&P 500 did fall more than 20%, but by the close, it was down only 18.9% from the high. Both the NASDAQ and the Russell 2000 (small cap stock index) had fallen into bear market territory.
We have seen two bear markets in the S&P in the last five years — in 2020 and 2022 — and two close calls — one in 2018 and one this year. Only one of the last four big market declines led to a recession, and that was due to a global pandemic.
Here’s the important thing to keep in mind: The market goes down about a third of the time, and stocks always have gotten past the down markets. We don’t think that this time is any different.
Man-made supply shocks caused by policy decisions (i.e., tariffs) are dominating the current environment. Here are some important takeaways to keep in mind during this period of volatility and uncertainty:
1. The stock market does not appear to like tariffs.
Tariffs are taxes that importers pay. These taxes either hit the company’s bottom line or they will be passed on in higher costs to the supplier and consumer. Businesses must adapt to tariffs — and the policy is changing on a seemingly daily basis. The market is concerned that the effective tariff rate could erase most of the economic and double-digit S&P earnings growth that was expected this year — as well as GDP growth.
2. Global investors are reducing their exposure to U.S. assets.
Fixed-income markets have been hit along with the U.S. stock market. Bond yields initially sank after the tariff announcement on April 2 and subsequently rose after higher tariff levels on some countries, such as China. The Federal Reserve continues to signal that it will keep its policy rate steady.
The trade war puts the Fed in a tight spot; a prolonged trade war could drive the economy into a recession, but inflation is holding higher than 2%. Treasury rates have surged to their highest level in over a month, while one of the main goals of additional tariffs is to reduce the long-term rates. It is more than likely that the rise in rates is due to hedge funds and institutions selling stocks and bonds to raise cash in the face of high market volatility.
3. Market volatility can affect policy decisions.
Both the stock and bond markets reached a fever pitch last week. Excess volatility in fixed-income and currency markets drove a policy pivot and led to a 90-day pause for most tariffs. Tariffs are not laws; the International Emergency Economic Powers Act gives the president the authority to levy them. There is some discussion that the Supreme Court will need to get involved, but legal clarity takes time, and potential further market volatility is expected. The latest tariffs may not persist at current levels. The good news is that tariffs can be removed with the stroke of a pen.
4. Volatility can create opportunities.
With stocks down and yields up, investors with excess cash can take advantage of both stocks and bonds. This could be an opportunity to convert a Roth IRA if the value of the Roth is down significantly from recent highs. As we previously discussed, missing the big gain last week is the equivalent of missing nearly a year and a half of market returns. Trying to time this (or any) market is very difficult. The S&P has never failed to make new all-time highs after selloffs or bear markets.
In the coming weeks and months, we are likely to see continued market volatility as the stock and bond markets digest the impact of ever-changing policy initiatives. Remember, long-term investment goals require long-term perspective, especially during times of heightened market volatility.
We fully understand it is hard to watch portfolio values fluctuate with the ups and downs of the market, but sticking with the long-term strategy will pay off over time. As always, we will be keeping a very close eye — and we will keep you apprised.
The CD Wealth Formula
We help our clients reach and maintain financial stability by following a specific plan, catered to each client.
Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market.
We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.
It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.
For now, the S&P 500 has narrowly avoided entering a bear market, defined as a sustainable period of declining stock values, with a drop of 20% or more from recent market highs.
Trade policy is shifting rapidly, often changing daily. With recent tariff announcements, the stock market has been experiencing large levels of uncertainty.
Every period of market volatility feels different. We hear that a lot from clients: It feels different this time.
This is a very normal response to market uncertainty. As the chart below shows, though, stocks have moved higher and higher over the last 120-plus years, even with plenty of bad news. Each time, it felt different.
Stocks Tend To Go Higher Over Time — Even With Bad News
Dow Jones with major geopolitical events since 1900
History shows that selling in periods of extreme market volatility and bearishness has been a mistake. We don’t know what the rest of the year will bring, but smart investing can overcome the power of emotion.
Below are some solid investment principles that can help investors help fight the emotional urges in volatile and uncertain times.
1. Time in the market is what matters.
Every week, we write that timing the market is impossible and can lead to costly mistakes. Avoiding the market’s downs may mean missing out on the ups as well.
This week has been a perfect example. Stocks skyrocketed on Wednesday, with the S&P 500 rising almost 10% while the NASDAQ rose more than 12% in one day. On a percentage basis, this was the best day for the S&P since 2008 and for the NASDAQ since 2001. The vast majority (78 percent) of the stock market’s best days have occurred during a bear market or during the first two months of a bull market.
If you missed these days, your returns would be cut in half. If you missed the best 30 days, your return would be about 83% lower. These outcomes would create a very different long-term scenario.
Past performance does not guarantee future results. For illustrative purposes only. Data sources: Ned Davis Research, Morningstar and Hartford Funds, 1/25.
2. Market declines are part of investing.
Over long periods of time, stocks move higher — but market declines are inevitable.
Downturns Happen Frequently But Don’t Last Forever
Sources: Capital Group, RIMES, Standard & Poor’s. As of Dec. 31, 2024. Average frequency assumes 50% recovery of lost value. Average length measures market high to market low.
3. Stick to the plan.
We have created thoughtful and well-constructed plans for our clients that take into account the market’s ups and downs, risk tolerance and long and short-term goals.
4. Buy more on dips.
This is known as dollar-cost averaging — systematically investing at regular intervals, regardless of the price. If you have excess cash, now is the time to maintain your strategy, not to change it. (This does not ensure a profit, nor protect against a loss.)
5. Diversification matters.
Spreading investments across a variety of asset classes can help buffer the effects of volatility in the portfolio. This includes equities and fixed income. Bonds can help soften the impact of market losses on the overall portfolio.
6. The market rewards long-term investors.
It is always important to maintain a long-term perspective, especially when markets are volatile and declining. Including market downturns, the S&P average annual return over all 10-year periods from 1939 to 2024 was 10.94%.
S&P 500 Rolling 10-Year Average Annual Total Returns
Sources: Capital Group, Morningstar, RIMES, Standard & Poor’s. As of Dec. 31, 2024. Based on rolling monthly 10-year periods.
It’s natural for emotions to arise during periods of volatility. Those who can tune out the noise and focus on long-term goals are better positioned for a better financial future.
The CD Wealth Formula
We help our clients reach and maintain financial stability by following a specific plan, catered to each client.
Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market.
We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.
It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.
Twenty-five years ago, the dot-com bubble burst, and the NASDAQ reached its peak. Today, we hear the question often in the news: Did AI stocks hit the wall in the first quarter?
Heading into the year, the Magnificent Seven stocks — Apple, Amazon, Google, Meta, Microsoft, Nvidia and Tesla — led the market after carrying much of the heavy lifting over the past two years. Extended valuations in those stocks made them vulnerable to bad news, and they were down about 16% in the first quarter, trailing the broader S&P 500 index. In turn, valuations for NASDAQ stocks have fallen back to levels last seen in early 2023.
Tech and Tech-Adjacent Under Pressure
Sources: Charles Schwab, Bloomberg. As of 3/28/25. Past performance is no guarantee of future results.
Investors saw that market diversification was the winner for the first quarter, something we haven’t seen in over three years. In 2022, cash was the only asset class that wasn’t negative, with both stocks and bonds falling more than 15%.
While the average 60/40 portfolio (60% stocks, 40% bonds) was negative for the first quarter, it was down much less than the overall market, thanks to diversification. International stocks, as measured by the MSCI ex-US, were up more than 6% — compared to the S&P 500 being down about 5%. (This was an outperformance by almost 11% for international stocks.)
At the same time, bonds (or fixed income) were positive at almost 3%. The leading sectors in the S&P 500 were healthcare, energy and utilities — not technology.
We believe stocks will remain volatile for the near term, driven mainly by tariffs and uncertainty about policy.
Tariffs are not new, but what is different today is their scale. President Trump is targeting more countries, more aggressively, than he did in his first term.
The U.S. announced permanent 25% tariffs on imported cars and certain auto parts. It is important to remember, however, that this policy can shift rapidly, making the idea of timing the market based on tariff news extremely difficult. Global investors should have some clarity this week, after “Liberation Day” tariff announcements on Wednesday.
The five main goals for Trump’s tariffs are curbing the flow of illegal immigration into the U.S., reducing the flow of fentanyl, leveling the playing field with trading partners, boosting government revenue and boosting domestic manufacturing. Trade policy is evolving, with an emphasis on renegotiated deals to strengthen the supply chain and support American industry.
For decades, the U.S. focused on free trade with its political allies and on allowing consumers access to cheaper goods. This has led to a widening trade deficit, less control over supply chains and declining manufacturing at home.
Today the top U.S. exports are energy and autos, while the top imports are autos, auto parts, energy, and electronics. The countries we import from the most to are also the ones that we export to the most, with the notable exception of China, as seen in the chart below.
Imports and Exports by Largest U.S. Trading Partners
Source: Kestra Investment Management with data from the Office of Trade & Economic Analysis, Industry & Analysis, International Trade Administration of U.S. Department of Commerce, and U.S. Census Bureau. Data as of February 2025 with 2024 annual data.
Why does this matter?
After decades of prioritizing free trade, U.S. policymakers are focused on strengthening domestic industries and reducing reliance on imports. Tariffs and reworked trade deals are focused on bringing benefits back to the U.S. This is not something that will play out overnight; these moves will take years to implement.
The pandemic highlighted supply-chain disruptions and the vulnerabilities of relying on imports and products that are manufactured overseas. While many corporations have already been shifting manufacturing away from China and other foreign countries, it takes time and money to bring this back home.
This will come at a price for consumers and corporations. Time will tell how this plays out, and we are more than likely to face many more changes to economic policy.
The CD Wealth Formula
We help our clients reach and maintain financial stability by following a specific plan, catered to each client.
Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market.
We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.
It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.
The S&P 500 finished in the positive last week for the first time in more than a month. It wasn’t that long ago that the S&P was down more than 10% on the year and stocks were in correction mode. It took only 16 days for stocks to fall more than 10%, and since that time, stocks have rebounded just as quickly.
Fast bouncebacks are common after fast corrections. As the chart shows, the market has been positive three, six and 12 months after other fast drawdowns in stocks, with an average return of more than 13%. This doesn’t mean that our recent volatility is done or that we won’t revisit the March lows — but it does reiterate our constant drumbeat to ignore the noise and not to time the market because historically, the market has always rebounded.
One of the Fastest Corrections Ever; Now What?
S&P 500 returns after quickest moves into a correction (from all-time high to 10% off peak)
The April 15 tax deadline is approaching fast. Staying informed about policy changes and regularly assessing your financial situation can help you build strategies that align with your goals.
To help you with tax preparation — whether you are doing it yourself or having a CPA help you — here’s a list of the most common documents you will need to gather:
• W-2s: If you work for an employer, you will receive this form, which shows how much you earned and how much was deducted for taxes and other withholdings.
• 1099-NEC (MISC): If you are a contract employee, you can expect to receive this form.
• 1099-INT and 1099-DIV: If you earned interest from savings or investments, you may receive this form. The 1099-DIV reports dividends and distributions from investments.
• Consolidated 1099: This brokerage tax form will show income from dividends, both qualified and non-qualified, as well as any capital gains and losses that occurred during the year.
• 1099-R: If you take a distribution from your retirement account, you will receive this form, which shows the amount of distribution and the amount of taxes withheld.
• Form 5498: This form reports your total annual contributions to an IRA account and identifies the type of retirement account you have. Here is some new information about this form for 2024 tax reporting: — In an effort to be more environmentally conscious and efficient, NFS is sending the Form 5498 tax document only if you’ve made contributions, completed rollovers, reached age 72, or have certain types of investments within your brokerage IRA. — From now on, the Form 5498 will also be generated in May. This document is not technically needed for filing and provides a clean summary of your IRA activity, which can be useful for future planning or if you ever need to verify past transactions. — In lieu of this form, you will still need to know how to obtain your contribution and distribution information for your taxes.
• 1098: Those who own a home and pay mortgage interest will receive this form from their lender. It shows the amount of deductible interest a homeowner paid.
• 1098-T: If you have a dependent in college, you will receive this form that reports how much qualified tuition and expense was paid during the year.
• K-1s: If you have any limited partner investments, you will receive this form, which shows each partner’s share of the earnings, losses, deductions and credits.
No one wants to pay more than taxes than they must. The tax code has been simplified over the years, yet it remains incredibly complex.
The number of tax brackets has been reduced significantly, and knowing what marginal tax bracket you are in is very important. If you know your estimated tax rate, that may help determine the most tax-efficient investments.
For example, if you are in a high tax bracket, owning municipal bonds may make sense to reduce your taxable income. If you are in a low tax bracket, you may be able to take advantage of lower capital gains rates and pay less on investments sold for a gain. As always, we recommend speaking with your CPA/Accountant to review.
By first understanding the tax bracket, we can plan better tax strategies for you and your family.
If you’re in a higher tax bracket, the following strategies may make sense:
• If you’re older than 70, consider reducing taxable income by using IRA monies to make charitable distributions. • Consider delaying taking Social Security income until you turn 70. • Take advantage of itemizing by lumping charitable contributions together in one year.
If you’re in a lower tax bracket, the following strategies may make sense:
• Consider increasing withdrawals from IRAs up to the level of the current tax bracket. • You may wish to convert an IRA to a Roth IRA in a year of lower income taxes. • If possible, defer income and sale of capital gain property to postpone taxable income. • If you’re itemizing on your tax return, bunch your medical expenses in the current year to meet the percentage of your adjusted gross income to claim those deductions.
Tax planning is not just a once-a-year event. The chart below is a good reminder that as part of the financial planning process, we are constantly evaluating current circumstances to guide our clients with potential tax saving strategies.
Along with your CPA, we want to ensure we are evaluating the current landscape for tax changes and strategies that may help save future dollars and keep money in your pocket.
Here are some steps to consider before the end of the year:
So, what can we learn from all this? As you prepare to file your taxes before April 15, it is a perfect time to review your financial planning needs. This includes reviewing the investment portfolio, assessing ongoing tax planning opportunities, reviewing retirement goals, and managing your wealth transfer and legacy plans.
The checklist above contains just some of the items that may apply to your family. We are happy to meet to discuss any of the above to make sure you remain on track with your financial profile.
The CD Wealth Formula
We help our clients reach and maintain financial stability by following a specific plan, catered to each client.
Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market.
We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.
It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.
Stocks slipped into correction mode last week, with the S&P 500 falling more than 10% from its peak in mid-February. It took only 16 trading sessions for the S&P to sink 10%, marking the seventh-fastest correction since 1929. Three of the fastest seven drawdowns have happened under President Trump: 2018, 2020 and now.
Some important things to know about corrections:
• The S&P has averaged 1.1 corrections per year since 1928. • Corrections happen for a reason, and stocks have always fully recovered. • Emotions run high during corrections, and many investors are prone to making costly investment mistakes out of fear that the correction will worsen and stocks won’t bounce back. • The best defense against corrections is to remember that they are normal, even in good stock markets.
S&P 500 Enters Correction Territory
The gauge fell 1.4% Thursday, bringing its three-week rout past 10%
Source: Bloomberg
Corrections feel different every time, and they never feel normal – but they are. We are in a trade war with uncertainty all around us, and markets do not like uncertainty.
Investors tend to rationalize in a negative context, thinking that the current situation is different from previous corrections. It’s natural to fear the worst. The chart below is a great reminder that throughout history, the U.S. economy and stock market have faced many obstacles and still have gone on to thrive.
Past performance is no guarantee of future results. Sources: FMRCo, Bloomberg, Haver Analytics, FactSet. Data as of July 31, 2024. The S&P 500 Index is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation. S&P and S&P 500 are registered service marks of Standard & Poor’s Financial Services LLC. The CBOE Dow Jones Volatility Index is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. You cannot invest directly in an index.
Since 1980, the S&P 500 has dropped 5% or more in nearly every year (93% of the time) and 10% or more in almost half of the years (47%). The current correction is the 24th in 46 years, meaning a 10% drop happens more often than not.
Despite that, most years still end positively. Only nine out of those 46 years ended with losses. In 16 of the 24 correction years, the market avoided a bear market (a 20% drop) and still delivered an average return of 9.5%, which matches the long-term average since 1950. Since World War II, there have been 48 corrections, but only 12 turned into bear markets — a relatively low number.
Putting 2025 in Perspective
S&P 500 Index max pullback per calendar year
Sources: Carson, YCharts 3/13/2025 (1980-current)
The chart below reminds us that what matters most is time in the market — and not time out of the market. The best and worst days of the year often are close to each other, so if you sell on the bigger down days, you will be more likely to miss the bigger up days to help you recover. We saw this last week; Monday was the worst day of the year, and Friday was the best day of the year.
In 2024, the S&P was up more than 23% on the year. If you missed the best 10 days, your return was less than 4%! (The same was true for 2023.) Since 2000, the average return for the S&P has been 9.5%, but if you were to miss the best 10 days, the return would be -12.5%!
Missing the Best 10 Days of the Year Can Crush Returns
We know that this correction and recent market volatility don’t feel good. Understanding the market’s history is important when you are making decisions about how to achieve your long-term investing goals.
While we don’t know how long the market pullback may last — whether it is short-lived or the start of a longer market drawdown — history shows that the stock market recovers, and diversified investment portfolios help withstand volatility and tough market times.
The CD Wealth Formula
We help our clients reach and maintain financial stability by following a specific plan, catered to each client.
Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market.
We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.
It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.
Tariffs, tariffs, and more tariffs: A new round of tariffs targeting Canada, Mexico and China has whipsawed the stock market in recent days and weeks. The market does not like uncertainty, and that is exactly what we have right now – daily uncertainty regarding the number of tariffs, as well as what countries and which products will have them.
So, what are tariffs?
Tariffs are taxes on imported goods, intended to get a nation’s consumers to buy local products to boost their country’s economy. A company that imports goods pays the tariff — which can be fixed or variable — to the government. The company then has the choice to pass the cost of the tariff to the end consumer or to eat the cost of the tariff and reduce its corporate profits.
The purpose of tariffs is typically to retaliate against other countries for perceived unfair trade practices. At the end of the day, tariffs can increase the cost of production and the cost to the consumer. They also can harm trade and affect a country’s competitiveness in the marketplace.
Last week alone, 25% tariffs on Mexico and Canada went into effect after a monthlong delay. Then, a day later, a month pause was granted for automakers that comply with the United States-Mexico-Canada Agreement (USMCA), a modernized version of NAFTA. Then on Thursday, the pause was extended to include goods that are compliant with the USMCA.
Also, an additional 10% tariff on Chinese imports took effect — on top of the 10% increase that went into effect last month. These tariffs are twice as large as those imposed during President Trump’s first term. The new tariffs will raise the average effective tariff rate that the U.S. imposes on imports from about 2% to 10%, which is something we haven’t seen since the 1930s and 1940s.
Average U.S. Tariff Rates
Sources: U.S. International Trade Commission, EY-Parthenon
It’s a challenge to assess the potential damage to economic activity, given the rapidly changing news events from the administration and the differing messages coming from the Secretary of Treasury, Elon Musk, or the president.
The sharp rise in policy uncertainty, combined with recent softening in business and consumer confidence, has led investors and the markets to worry about the dreaded R-word: recession. On-again, off-again tariffs, the reprieve for the auto industry and the likelihood that these tariffs are a negotiating tool to help achieve other policy goals, are causing the markets to take a risk-off approach, as we see money move out of the technology stocks that have worked so well the last two years.
In Trump’s previous administration, we saw that tariffs did have an impact; consumers and business shifted their buying to countries that were not impacted by tariffs. Countries that were targeted by tariffs saw their prices rise more than other goods.
During the first term, the tariffs were more targeted and impacted just a small portion of the country’s imports. This time around, the tariffs that have been announced have a much larger potential impact because they are targeting a wider range of goods.
Trump Tariffs 1.0: Trade Patterns Shifted
Source: Goldman Sachs Global Investment Research with data from the U.S. Census Bureau and Haver Analytics
Tariffs can be an attractive tool for a president because they can be implemented without Congressional approval. They are easy to put on and to take off. If it becomes clear that tariffs are negatively impacting economic growth, they can be undone easily.
They will continue to be a dominant story for the stock market for the foreseeable future. U.S. trading partners may make trade policy moves of their own, and corporate executives will talk about the potential impact on their companies’ earnings.
Trump Tariffs So Far
Source: Bloomberg. Note: Data as of March 4, 2025. Future dates subject to change; for tariffs targeting digital taxes, date hasn’t been set yet.
We cannot predict where we go from here. We believe that the bull market is still ongoing — and that it has a ways to go. That doesn’t mean we won’t see significant volatility, like we are seeing now. The S&P 500 is almost in a correction mode (down almost 10% from recent highs), while the NASDAQ is firmly in correction mode.
It is important to remember that even the best years on record have had scary moments. In each of the the last two years, stocks gained more than 20% in the S&P 500, but it wasn’t always easy.
Remember the banking crisis in March 2023? Stocks dropped almost 10%, and then later that year, they dropped another 10%. Last year, we saw two mild corrections, with stocks dropping almost 9% in August. We have referred to this chart before, but now it is a great reminder that stocks drop at least 10% on average almost every year — and so far, 2025 is no different.
Volatility Is the Toll We Pay to Invest
S&P 500 various declines per year (1928-2024)
Sources: Carson Investment Research, Ned Davis Research
The CD Wealth Formula
We help our clients reach and maintain financial stability by following a specific plan, catered to each client.
Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market.
We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.
It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.
Sources: Capital Group, Carson, CNBC, JP Morgan, Kestra Investment Management
The markets have been volatile in the second half of February and the beginning of March as worries over the economy,tariffs and technology stock weakness have dominated the headlines. The positive returns we saw in January have all but vanished.
February historically has been a weak month, so in many ways, what we are seeing is normal and not a reason to panic. It’s easy to forget that we are coming off back-to-back gains of 20% in the S&P 500 the past two years, and maybe a break is due. Just two weeks ago, we saw market highs in the S&P 500, but today, that feels like a long time ago.
Over the past two decades, March and April historically have been two of the better months, while February has been one of the weakest. The chart below illustrates that markets have declines and pullbacks in every year. It’s a good reminder that downturns are regular and that we should learn to expect a few market surprises.
Market Declines Have Happened Every Year
Sources: Capital Group, Standard & Poor’s. As of Dec. 31, 2024.
Going back to 1928, S&P 500 returns show that the market has been positive almost 75% of the time — three out of every four years on average! Stocks were negative only one in every four years on average.
The economic backdrop remains positive, bolstered by strong wage growth, steady rates and potential new policy designed to foster growth in America. These high expectations have led to valuations that may be elevated, but that doesn’t mean that everyone should abandon stocks.
S&P 500 Annual Total Returns, 1928-2024
Sources: Capital Group, Standard & Poor’s. As of Dec. 31, 2024.
Uncertainty around tariffs, federal layoffs and a weakening economy contributed to the markets’ performance in February. To put the layoffs into perspective, federal employees account for only about 1.5% of the workforce, and economists project that the job losses could account for less than .5% of current non-farm jobs in the U.S.
The Atlanta Fed recently estimated that the first-quarter GDP would be negative, dropping from +2.3% to -1.3%, based largely on the effect of tariffs on imports from Mexico, Canada and China. The tariffs have prompted retaliatory measures from those countries, along with concerns about economic growth and consumer prices.
There is no doubt GDP growth is likely to slow from the 3% annual pace we have seen the last few years, but the Atlanta Fed’s estimate does not take imports into account. While the headline number drew attention and cause for concern about potential recession, numbers alone don’t tell the whole story, as is often the case.
From a portfolio management perspective, we continue to look ahead — just as the markets are forward-looking, often telling us what may happen. With an eye on the future, we are making the following portfolio changes as we end the first quarter:
1. Diversifying Beyond the Magnificent Seven
Over the last two years, the markets have been dominated by the Magnificent Seven stocks – Apple, Amazon, Google, Meta, Microsoft, Nvidia and Tesla. Last year, we saw some early movement towards the other 493 stocks in the S&P 500. This year, we have really started to see the broadening out of the market, as the current leaders so far are some of the stocks that led the markets years ago.
That isn’t to say that the technology trade is dead — far from it, as investment in artificial intelligence is still in its infancy. From an equity perspective, we are maintaining our allocation to large-cap stocks as well as technology stocks. We are adding some additional exposure to value stocks as the market continues to move back toward a sense of normalcy regarding market breadth.
We also are tweaking our mid-cap exposure to make sure we maintain true exposure to the asset class. As is often the case with mid- and small-cap stocks, they tend to move either up or down in market cap as they grow or get acquired. Sometimes, they shrink due to market struggles or economic situations. Rebalancing the portfolio is important to capture and redistribute some of the winnings.
2. Rebalancing Fixed-Income Allocations
With the yield curve continuing to normalize and remaining un-inverted, we want to make sure the duration of the portfolio remains in line with the aggregate index. The longer-dated maturities at the end of the yield curve are more volatile than the short-end of the yield curve.
We have seen more volatility this year in the Treasury market as the markets try to understand which direction the Fed may be headed with interest rates and inflation. Like our equity allocation, it is important to rebalance our fixed-income allocations. From time to time, they need to be shifted to rightsize the positions and put them in position for where we see the markets heading.
We believe that when rates fall, we will be able to capture nice income, along with capital appreciation from rising bond prices.
Market sentiment has soured due to uncertainty. Talk of recession is starting to loom — and one of the biggest threats to your portfolio could be you.
Staying invested in the face of market turmoil is easier said than done. While your gut may compel you to sell to curb the downturn, getting out of the market — even for a short time — can be devastating to the portfolio.
We continue to maneuver the portfolio in response to where we think the puck is moving. We are not accustomed to a world where interest rates and inflation are higher. Financial markets, both stocks and bonds, are more volatile in response, which we have seen in the first two months of the year.
Staying in a diversified portfolio still is the key to navigating volatility. We will continue to monitor the portfolio and make changes to go to the puck, not wait for the puck to come to us.
The CD Wealth Formula
We help our clients reach and maintain financial stability by following a specific plan, catered to each client.
Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market.
We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.
It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.
