A fundamental shift in macro and foreign policy, combined with weakening business and consumer confidence, has raised investor concerns about the economy and its impact on markets in 2025. In this environment, maintaining balance is ever more important. That means diversifying to manage risk, staying mindful of valuations, and keeping a long-term perspective amid market swings. Below, we outline key market themes and strategies to help navigate the uncertainty.
Market Volatility and Policy Uncertainty
Equity markets have faced turbulence as investors reassess economic growth expectations amid shifting policy dynamics. While the US economy remains resilient, uncertainty surrounding the path for tariffs, taxes, and government spending have all driven gauges of general economic policy uncertainty to levels not witnessed since 2008 and 2020. We believe it’s ever more important to focus on the path of economic data rather than the noise and uncertainty from Washington.
Economic Policy Uncertainty Has Risen to Near All-Time Highs
Baker, Bloom, and Davis US Economic Policy Uncertainty Index
Source: Bloomberg, MSIM. As of March 7, 2025. Past performance is no guarantee of future results.
Equity Valuations and Market Positioning
It’s important to remember equity market corrections are a normal part of market cycles. Still, US equities—particularly mega cap growth stocks—remain expensive compared to historical norms and global peers. Given valuations, elevated volatility could cause growth areas of the market to revert to more normalized levels. Investors continue to benefit from a diversified approach that includes value-oriented sectors and select international markets with less demanding valuations.
Reversion to the Mean: Finding Value Beyond The S&P 500 Index
12-Mo Forward Price-to-Earnings Valuations Relative to the Last 20 Years
Source: MSCI, Bloomberg, Crescent Grove Advisors. As of February 28, 2025.
Interest Rates and Economic Resilience
Economic concerns have recently taken precedence over inflation worries, leading to a notable decline in interest rates. But expectations around inflation and economic growth remain in flux, and investors should be mindful that interest rates could rise again if inflation proves stickier than expected or if fiscal concerns push yields higher. A well-balanced portfolio across traditional and alternative asset classes can help navigate these uncertainties.
Interest Rates Drop on Economic Worries, While Inflation Expectations Rise on Tariff Uncertainty
YTD Changes in Treasury Yields by Maturity Inflation Expectations (Based on 2-Yr Tips)
Source: Bloomberg. As of March 7, 2025. Inflation expectation based on 2-Yr breakeven rates.
Long-Term Perspective Remains Critical
Markets will likely experience ups and downs in response to policy headlines, economic data, and geopolitical developments. Investors should remain focused on long-term objectives rather than reacting to short-term noise. A disciplined, diversified approach can help manage risk while positioning for future growth.
Disclosures
Past performance is not a guarantee of future performance, and all investments are subject to the risk of loss. This presentation contains forward-looking statements and is subject to numerous assumptions, risks, and uncertainties. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy.
Readers are cautioned that actual results may differ materially from those anticipated in forward-looking statements due to factors that are outside of the anyone’s control which could cause actual results to differ materially from such statements. As a practical matter, no entity is able to accurately and consistently predict future market activities. While efforts are made to ensure information contained herein is accurate, Crescent Grove Advisors cannot guarantee the accuracy of all such information presented.
This communication is not intended to be construed as an offer to buy or sell any security. Material contained in this publication is for informational purposes and should not be construed as accounting, legal, or tax advice.