2025 Market Update

I hope you’re doing well. As always, my goal is to keep you informed about key market developments and strategic shifts in your portfolio. Below, I’ve outlined my thoughts on recent events. If you have any questions or would like to discuss anything in more detail, please feel free to reach out. Also, if you know someone who might benefit from these insights, feel free to share this email or make an introduction.

Market Overview: A Wild Start to 2025

The S&P 500 hit an all-time high on February 19th, 2025, at 6,144.15, but since then, we’ve seen a 10.1% decline from the highs before markets started to recover. Meanwhile, international markets are outperforming the U.S., and bonds are of to a strong start, outpacing domestic stocks year to date.

The news cycle remains intense—Trump is being Trump, tarifs are back in focus, government programs are getting slashed, tensions with Russia/Ukraine and China remain high, and DeepSeek caused the largest single-day stock loss ever. It’s certainly an eventful time to be an investor.

If you have a well-diversified portfolio, the good news is that you have options. My advice? Stay flexible, ignore short-term noise, and don’t listen to people who only brag about returns.

They’ve probably gone quiet lately.

Below are the year-to-date (YTD) returns for relevant areas (as of market open March 17th, 2025):

• S&P 500 (500 Large S. Stocks): -3.85% YTD
• Russell 2000 (U.S. Small Cap Stocks): -8.11% YTD
• MSCI EAFE (Developed International Stocks): 9.45% YTD
• MSCI EM (Emerging Markets Stocks): 50% YTD
• Bloomberg US Aggregate (Fixed Income): 2.08% YTD
• Bloomberg Capital High Yield Index (Below Investment Grade Fixed Income): 08% YTD
• Gold: 45% YTD

Investment Considerations:

In light of recent market conditions, my focus remains on lower costs, increased flexibility, and enhanced risk-adjusted returns.

• Equity Bonds: While I still favor stocks over bonds, it may be prudent to slightly reduce exposure in response to current market conditions.
• S. vs. International Stocks: I currently favor U.S. stock exposure over international developed markets, prioritizing large, high-quality companies with strong earnings.
• Gold: As global trade disruptions and geopolitical risks rise, gold remains an attractive
• Active ETFs: Ofer the benefits of professional management with potentially lower costs and greater tax eficiency compared to mutual
• Mid- and Small-Cap Active ETFs: These ETFs provide lower-cost alternatives with the potential for benchmark-like performance or outperformance due to security and sector
• Dynamic Equity ETFs: This strategy can adapt to market trends, potentially enhancing long- term

AI & The Long-Term Investment Case

AI is in its early innings, much like the internet in the 1990s. Back then, companies rushed to add “.com” to their names, valuations skyrocketed, and many ultimately failed. Today, every company is

.com company. In 1995 Netscape had its initial public ofering (this was the first major Internet IPO) but it took time for real innovations to emerge. Imagine it’s 1995 (you are probably listening to Nirvana on your cassette player and heading to Blockbuster to rent Toy Story), what if I told you that in the future when you go on vacation you won’t stay in a hotel, you will stay in a random persons home (Airbnb (2008) transformed lodging), or when you go to your favorite city, you won’t hail a taxi, you will pull your computer out of your pocket and some guy named Jarrod will pick you up in his 2023 Honda Civic and you may or may not indulge in karaoke in his backseat (Uber (2009) disrupted transportation). We will experience the same thing with AI, eventually every company will be an AI company and the ways we will utilize it will challenge our current way of life and bring things to reality that today seem improbable (Chat GPT released in November of 2022).

AI is at the start of a long adoption cycle. We just witnessed DeepSeek, a Chinese hedge fund, use AI to trigger a massive market move. This moment proves that smaller players can compete, which will drive more innovation.

AI winners and losers will emerge, but the long-term opportunity is enormous. Investors often demand immediate results, but transformative shifts take time. I believe Technology remains the biggest investment opportunity, and I continue to advocate it as a long-term hold.

Key Market Themes & Risks

1. Tariffs: We’ve Seen This Before
   Trump’s tariff policies are back, which historically leads to market volatility before a resolution. The supply chain is complex but adaptable, and the inflationary impact may not be as severe as some expect.
2. Negative GDP Growth? Not So Fast.
   The Atlanta Fed is tracking -2.4% GDP growth for Q1 (as of writing this newsletter), but several factors—frontloading of imports ahead of tariffs, weather disruptions, and California wildfires—are likely distorting the data. A recession isn’t imminent, but I’ll be watching closely.
3. Inflation & Job Market Dynamics
   • Inflation remains high, but wage growth is Consumers may be more frugal with their spending going forward.
   • Government job losses are In the first 2 months of 2025 62,530 federal workers were laid of with additional layofs planned. It’s expected that job losses could exceed 100,000 for 2025. Also, a funding freeze has disrupted payments to contract workers despite court order attempting to block it. This could impact millions of jobs contracted out through the government.
   • Not to make light of a terrible situation but objectively an outcome of a larger pool of job seekers is that it could assist in bringing inflation If you lose your job or fear losing your job you will likely not be spending as much and if employers have a wider pool of applicants, they can ofer less in compensation to attract talent. Think of the psychology behind losing your job (or fear of losing your job). Are you booking a trip to Disney or buying a new sportscar? Probably not.
4. Market Pullback: A Normal Part of Investing
   There have been 345 instances of a 5% sell-of since 1950 and 38 market corrections, defined as declines of 10% or more—they feel dramatic but are often short-lived. For some investors, this could present opportunities for Roth conversions or tax-loss harvesting.
5. Warren Bufett’s Cash Pile: Don’t Read Too Much Into It
   Berkshire Hathaway’s large cash position is making headlines, but there could be plenty of reasons behind it—preparing for insurance claims (losses have been huge in this space due to natural disasters), potential acquisitions (there are few companies that Berkshire can purchase to make a meaningful impact on their portfolio due to how large Berkshire is, any meaningful acquisition will require a lot of cash), Capital gains rates are very low compared to history and it makes sense to take some profits (with an unsustainable national debt it’s possible that capital gains rates may be higher in the future) and estate planning for Warren Bufet’s eventual successor. It’s not necessarily a bearish signal.
6. Bitcoin’s Volatility: A Function of Broader Market Uncertainty
   As of March 14th, 2025, Bitcoin is down 22.6% from its peak level in January 2025, despite the U.S. pushing to become a crypto hub and regulatory clarity improving. The recent risk-of environment has affected all speculative assets.
7. Trade War Impact: The U.S. Holds the Stronger Hand
   While tariffs can disrupt supply chains, the U.S. is the most self-sufficient major economy, with approximately 25% of GDP tied to trade (compared to 85% for the EU, 80% for Mexico, and 65% for Canada). Countries outside of the US have a greater reliance on trade.

Final Thoughts: Staying the Course in a Shifting Landscape

Markets move in cycles, and uncertainty creates opportunities. While headlines will continue to drive short-term volatility, my focus remains on long-term wealth creation through sound investment strategies.

If you’d like to discuss anything in this update or how it applies to your portfolio, don’t hesitate to reach out. As always, I appreciate your trust and the opportunity to help you navigate the ever- changing markets.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Michael Fitzgerald and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The companies engaged in the communications and technology industries are subject to fierce competition and their products and services may be subject to rapid obsolescence.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Russell 2000 index covers 2000 of the smallest companies in the Russell 3000 Index, which ranks the 3000 largest US companies by market capitalization. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index's three largest industries are materials, energy, and banks. The Bloomberg Capital High Yield Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below.

Inclusion of indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transactions costs or other fees, which will afect actual investment performance. Past performance does not guarantee future results.