New Policy Invites Fog

In January, I shared my thoughts with clients regarding the market and economic environment, what is likely to come in the short term, and what we think is important regarding portfolio positioning in light of this.

I shared an analogy the JP Morgan Asset Management team used as they suggested we are ‘leaving a cyclical storm into the midst of policy fog.’ As I noted,

• New Policy (any new policy, not just new policy in 2025) leads to - Fog.
• Fog - leads to - Uncertainty.
• Uncertainty - leads to - Potential Shocks.
• Potential Shocks - do not necessarily lead to - definite negative or positive outcomes, just uncertainty.
• Markets do not like Uncertainty.
• Hence, Volatility arrives on the scene.

Well, here we are in mid-March, and we are in the Fog. For the objective observer, there is nothing unexpected about this. For the objective observer who allocates portfolios, the work that was done prior to the Fog arriving was the important part. We diligently set up your portfolio so that any money you need in the near term to fund your lifestyle is not invested in the stock market. This is how long-term investing manages volatility and risk; managing market risk in the near term and using volatility as an advantage in the long term.

For the objective observer, there is nothing unexpected about this. For the objective observer allocating portfolios, the work that was done prior to the Fog arriving was the important part.
-David Jeter, CFP®

How do we do this? By understanding that a down market means the prices of stocks are on sale. You will be buying ownership in companies at a price that is a sale from just weeks ago.

Using history as a guide:

• Since 1980, the S&P 500 Index has had intra-year declines every single year. In other words, in 45 out of 45 years, the market has dropped at some point.
• The average intra-year decline is 14.1%. As of March 13th, the market has declined -4.56% year to date.
• However, in 34 of those 45 years, the market has ended positively.
• Investing is a long-term proposition, and patient investors win.

Source: JPMorgan Guide to the Markets, Q12025.

Regardless of your political leanings, I also want to temper the idea that there is something uniquely different about this latest change in Presidential Administrations and the impact on the stock market. Though some may ‘feel’ this way, others have ‘felt’ that way in the past, yet we persist.

Keep in Mind:

1. Historical Perspective:
   • Historically, the stock market has experienced fluctuations under various administrations, regardless of the president’s policies. For example, during President Trump’s first term, tariffs initially caused a decline in the S&P 500, but the market quickly recovered. In other administrations, policy changes have created short-term market drops, only to see robust recoveries. This demonstrates that market reactions are often temporary and influenced by a multitude of factors beyond presidential actions.
2. Economic Fundamentals:
   • The stock market is driven by underlying economic fundamentals such as corporate earnings, interest rates, and global economic conditions. While presidential policies can influence these factors, they are not the sole determinants of market performance.
3. Media Bias:
   • It’s important to recognize that media coverage can be biased, affecting public perception of a president’s impact. Studies have shown that media bias exists, but it doesn’t necessarily reflect the actual economic impact of presidential policies. This bias can lead to exaggerated perceptions of a president’s influence on the market.
4. Behavioral Finance:
   • Emotional reactions to political events can cloud judgment. Behavioral finance teaches us that investors often react emotionally to news, which can lead to irrational decisions. By focusing on data and trends rather than emotions, investors can make more rational decisions.

For those who accept and understand that market downturns are a feature, not a flaw, and understand that they give you an opportunity to enhance your long-term returns, periods like this are not to be feared but may even be embraced.

Author: David Jeter, CFP® | Allegheny Financial Group | March 2025

The information included herein was obtained from sources which we believe reliable.

Allegheny Financial Group is an SEC Registered Investment Advisor.