Market Update-Positioning For The Next Phase

Market Recap

2025 has been a volatile year, marked by government spending cuts, looming tax changes, tariff-related uncertainty, and a highly charged political climate. Leading up to Liberation Day (April 2nd) and following the Rose Garden speech that introduced a new definition of "reciprocal," the S&P 500 dropped 19% from its peak on February 19th. Yet, as of this writing, the S&P 500 is up 1.06% year-to-date and trading higher than pre-Liberation Day levels—within 5% of its all-time high.Remarkably, this rebound has occurred without any meaningful policy breakthroughs or trade deals announced. The recent U.S. Court of International Trade ruling to vacate the tariffs is already being contested by the Trump administration, and further tools may be used to advance its trade agenda. Still, investors appear to be looking beyond this uncertainty for now. Since the April 8th market bottom, equities have rallied strongly, and momentum remains positive. Developments on tariffs, tax policy, and their impact on the economy and corporate earnings will continue to unfold, with effects likely to emerge in economic data over the coming months.

Portfolio Positioning: Rebalance or Hold?

As mentioned in a prior update, investors who found themselves “offsides” with too high of a risk level on their account or loaded up with speculative assets, now have a great opportunity to reconsider their asset allocation. If you entered the year globally diversified, tilted toward higher-quality equities, and had exposure to alternative asset classes beyond stocks and bonds, this may be a good time to take some chips off the table and rebalance your allocation. As always, if you have concerns about market conditions or your financial plan, I’m here to help.

Year-to-Date (YTD) Returns as of June 2^nd, 2025 (Source: JPMorgan Asset Management)

• S&P 500 (Large U.S. Stocks): +1.06%
• Russell 2000 (U.S. Small Caps): –6.85%
• MSCI EAFE (Developed Int’l): +17.31%
• MSCI EM (Emerging Markets): +8.89%
• Bloomberg US Aggregate (Bonds): +2.35%
• Bloomberg HY (High Yield Bonds): +2.68%
• Gold: +26.15%

Trade Considerations and Market Strategy

• Reducing U.S. Equity Overweight:S. equities have enjoyed a tremendous run over the past five years, but risks are mounting. Increasing diversification and favoring quality and thematics may offer better risk-adjusted returns going forward.
• Focus on Quality within U.S. Equities:Within U.S. markets, I recommend emphasizing mega-cap and AI-focused companies with strong balance sheets. Actively managed strategies that can adapt to dispersion and volatility through thematic rotation may be especially effective.
• Maintain Gold Allocation:Following the freezing of Russian assets and their partial removal from the SWIFT system (due to the invasion of Ukraine), countries like Russia and China have been aggressively increasing gold reserves. With continued global uncertainty, I see no reason for this trend to reverse and encourage maintaining a gold allocation—even after its strong YTD performance.
• Fixed Income: Emphasize Diversification:Tariffs may produce short-term inflation, but the broader trend still leans disinflationary. The greater risk lies in their drag on global growth, which may lead the Fed to look past inflation blips and proceed with rate cuts. In this environment, fixed income continues to offer attractive risk/reward characteristics.

Noteworthy Developments

The “Big, Beautiful” Bill:Still working its way through Congress, this bill could bring substantial changes to tax policy. Details are still speculative, but I expect greater clarity in the months ahead. Planning opportunities could emerge because of these changes.

Interest Rates and Yield Curve Dynamics:Despite a 1.00% Fed rate cut since September 2024, longer-term yields remain elevated. Factors such as fiscal policy and national debt concerns, trade policy uncertainty, reduced demand from foreign central banks, and the recent Moody’s downgrade of U.S. credit are keeping longer-term rates sticky. Still, at current levels, bonds offer a compelling option for yield-seeking investors. Unfortunately, if you were looking to finance/refinance a home at lower rates, you are currently on hold.

U.S. Credit Downgrade: A Reality Check:This year, Moody’s joined S&P (2011) and Fitch (2023) in downgrading the U.S. credit rating, citing rising debt and interest costs as concerns. While not new, it’s a reminder of the long-term fiscal challenges we face. The eventual passage of a reconciliation bill could also widen deficits even further.

Company Spotlights & Risks

Individual Stock Risk: UnitedHealthFrom the CEO’s assassination and cybersecurity breaches to DOJ investigations and executive turnover, UnitedHealth's troubles are a reminder that no stock is immune from unexpected shocks. The stock is down 53% since November 2024. This highlights the importance of diversification and risk awareness—even among blue chips.

Apple: Structural Challenges EmergingApple’s transformation from a hardware-focused company to a dominant digital gatekeeper through its App Store is now facing legal threats that could undermine its core business model. The lawsuit brought by Epic Games challenges Apple’s 30% commission on in-app purchases and its restrictions on alternative payment systems. After Apple removed Fortnite from the App Store, a court ruling forced the company to reinstate the app and allow third-party payment systems.This decision has wide-reaching implications. If Apple’s control over app payments weakens, it could reduce their revenue from services—a major growth engine in recent years. Furthermore, with global regulators watching closely and additional antitrust scrutiny mounting, Apple’s profit margins may come under pressure. The company is appealing the ruling, but the long-term effects of a more open app ecosystem could challenge its toll-collector role and reshape its valuation outlook.

Nvidia: The Frontier of InnovationFor inspiration about what’s possible in the next decade, I encourage watching Jensen Huang’s recent keynote at COMPUTEX. His remarks on the exponential growth in computing power—illustrated by the new Blackwell chip replacing entire supercomputers—are stunning. His vision for AI and robotics is one reason I remain long-term optimistic despite short-term volatility.

Here are a few highlights from his speech discussing the new Blackwell chips:"This system is 40 petaflops, approximately the performance of the Sierra supercomputer in 2018. The Sierra supercomputer has 18,000 Volta GPUs—this one node here replaces that entire supercomputer.""It’s a 4,000x increase in performance in 6 years.""Nvidia has been scaling computing by about a million times every ten years, and we are still on that track.""The peak traffic of the entire internet is 900 terabits per second. This (NVLink spine) moves more traffic than the entire internet."

Final Thoughts

While the headlines are noisy—ranging from geopolitical tensions and trade disputes to credit downgrades and policy shifts—the underlying fundamentals remain more resilient than many realize. We’re still operating in a market where innovation is thriving, balance sheets are generally strong, and long-term opportunities are emerging, especially in areas like AI and advanced computing.

That said, it’s a time to be thoughtful, not complacent. We’re selectively taking profits from outsized winners, managing risk across asset classes, and emphasizing quality and diversification in portfolios. We’re positioning for flexibility—preserving upside participation while guarding against potential shocks.

History reminds us that markets endure through uncertainty. Wars end. Policies shift. Volatility fades. But great businesses adapt, evolve, and often emerge stronger. And today, we have the privilege of investing in some of the best-run companies we’ve ever seen, many of which are just beginning the next chapter of transformational growth.

Let’s stay clear-eyed, patient, and prepared for what comes next.

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 affect actual investment performance. Past performance does not guarantee future results.