With the S&P 500 nearing correction territory and the potential for a global trade war, investors have a lot of questions (and rightfully so). In my recent interview with Gerard Gibert on SuperTalk, we discussed the recent market volatility and the economy.
There is an old saying on Wall Street, “stocks take the escalator up and the elevator down.” This is why corrections can happen so quickly and catch people off guard. The number one piece of advice we can give people is to be patient. Remember where we have come from. The chart below shows the S&P 500 over the past 12 months, still up. Yes, the euphoria post-election known as the “Trump Bump” has been wiped out, but we are not in a bear market.
S&P 500 Trailing 12-Months
In our 2025 Economic & Market Forecast events we discussed how US stocks valuations had become expensive (but not a bubble) and that 2025 would be a “show me” year. This meant that we believed earnings would need to accelerate to justify the prices people were paying. We also noted that most of the extreme valuations were in the tech sector on the hype of AI, and that the S&P 500 had become very concentrated in the top 10 stocks. This is where we see the biggest selling. In fact, dividend paying stocks in general are positive for the year and value stocks are barely below flat.
Our number one recommendation for the year was (warning – boring financial advisor advice) to be diversified. We said that there was a decent possibility that bonds could outperform US stocks for the year and that international stocks were very cheap compared to the US. Below we show the major asset classes using ETF proxies for the year.
Major Asset Classes YTD
As of this writing, the positive trend for US stocks has not broken. We are simply seeing some of the premium in US stocks get sucked out. But this is a year, thus far, where diversification is working. Below are a few of the investible benchmarks that we have created to track diversified portfolios.
Select EW Investible Benchmarks YTD
To be clear, we do believe there are some unknowns with trade policies and the potential for a slight uptick in inflation. But for today we recommend being diversified, while we gather more data and continue to watch the broader trend in stocks. Remember that there have always been risks in markets and there always will be. To be successful over the long term we must be patient and sometimes tune out the noise.
Jeremy Nelson, President
Element Wealth, LLC
A Ross & Yerger Company
