Navigating Market Volatility

Dear Valued Investor,

Market volatility has arrived in force. The slowdown in the economy and more policy-driven volatility was the consensus expectation coming into 2025. What was not expected, however, was how much the Trump administration would lean into tariffs. During President Trump’s first term, in most instances, investors observed the administration delaying, reducing, or even removing tariffs when the stock market expressed disapproval. Olive branches from the White House sparked stock rebounds. 

It appears this new Trump administration is more committed. The resulting uncertainty in terms of where tariffs will eventually land has caused investors’ angst, despite potential long-term benefits such as bringing some production back to onshore, enhancing national security, and raising revenue. 

In such an uncertain environment, it is very difficult for economists to forecast economic growth, for analysts to predict profits, and for companies to plan. A massive amount of capital investment in artificial intelligence is still very likely to happen this year, but markets had anticipated changing regulations would spur additional business investment. Well, tariff uncertainty appears to be foiling that plan, at least for now. Add some near-term inflation uncertainty among consumers and a potential negative wealth effect (when stocks go down, consumers spend less), and the economy may slow a bit more than many had anticipated. Conditions look good enough to put recession on the backburner, but there has been enough of a slowdown to raise recession fears.

So how should investors handle this? Our first piece of advice is don’t panic. Volatility is normal. It’s like a toll investors must pay on the road to attractive long-term returns. The stock market corrects once per year on average (a drop of 10-19%) and has still achieved a 13% annualized return including dividends since 1980.

Here's another way to think about the value of staying invested. If you miss the best day of the year – and that usually comes during volatile market environments when stocks are in a correction – your annualized return takes nearly a 4% hit. Miss the best two days of the year and the hit is nearly 7%. 

A recent Dalbar study revealed that investors generate returns about 5% below the overall industry because of excessive trading. Trims and adds with guardrails make sense for active investors. But going all in or all out is a recipe for falling short of your long-term investment goals. Market timing can be costly.

We may be close to putting in a durable low in stocks. More information about which tariffs will stick would help. Expectations for economic growth and corporate profits still need to come down more. And from a technical analysis perspective, we’d like to see more evidence of indiscriminate selling. When the sellers are exhausted, buyers can more easily lift the indexes.

Investors are understandably anxious. We suggest fighting off the temptation to sell and let those long time horizons work for you. As always, please reach out to me with questions.

Important Information

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. 

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

All data is provided as of March 11, 2025.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. 

All index data from FactSet.

The Standard & Poor's 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes int he aggregate market value of 500 stocks representing all major industries.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Past performance does not guarantee future results.

Asset allocation does not ensure a profit or protect against a loss.

This research material was prepared by LPL Financial, LLC.

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