2025 1st Quarter Letter
2025 1st Quarter Letter
Navigating Global Trade Developments
Dear Clients,
The first quarter of 2025 presented a period of notable volatility across global financial markets. This turbulence has been significantly influenced by the United States administration's renewed focus on addressing perceived trade imbalances with various international partners. A primary policy instrument being employed is the imposition of tariffs on imported goods and services. (Please refer to the accompanying chart, sourced from The Wall Street Journal and the U.S. Department of Commerce, illustrating these trade dynamics.)
To date, these actions have elicited retaliatory tariff measures from affected trade partners. Notably, on April 2nd, following the close of trading, President Trump announced a substantial expansion of these tariffs. This announcement triggered an immediate negative market reaction, culminating in the S&P 500 Index experiencing its most significant single-day decline since March 2020 as of today's market close.
Understanding Tariffs
Tariffs represent a form of tax levied on imported goods and services. While the initial obligation to pay these duties falls on the exporting country, the economic reality often results in increased prices for these goods and services to offset the additional cost. Consequently, the burden of these tariffs is frequently passed on to the end consumer through higher prices. This inflationary pressure poses a challenge to the Federal Reserve's ongoing efforts to manage inflation, which have been underway since 2022. Furthermore, the imposition of tariffs typically provokes reciprocal actions from trading partners, as is currently being observed.
Market Response Analysis
Year-to-date, the S&P 500 Index has registered a decline of 13.30% as of 4/4/25. The technology sector has experienced the most pronounced negative impact, with a decrease of 22.93%. This correction may also reflect a recalibration of valuations within the sector following a period of robust growth since 2023. Small and mid-sized capitalization companies have also exhibited a more significant downturn. Interestingly, international equity markets have demonstrated greater resilience compared to their U.S. counterparts. The Vanguard International Stock Index, for instance, is down 2.20% year-to-date. This divergence suggests that the impact of tariffs is not uniform across all economies, and certain nations may benefit from maintaining more favorable trade relationships with the United States.
Fixed-income markets have seen an increase in prices, driven by declining interest rates and heightened demand for lower-risk investments. Our private investment holdings have performed in line with expectations, exhibiting stability during both periods of market expansion in the preceding year and the current market contraction.
Miller Wealth Management’s Strategic Approach
Remembering what history has taught us, it is imperative to maintain a long-term perspective and avoid impulsive investment decisions driven by short-term market fluctuations. Our portfolio construction philosophy incorporates the potential for market pullbacks, but with exposure to different asset classes that maintain lower correlations with each other:
1) Globally Diversified Equity Holdings: Our equity allocations are strategically spread across developed markets to mitigate concentration risk.
2) Conservative Fixed-Income Positioning: Our bond holdings are structured to prioritize principal preservation, particularly in anticipation of potential future withdrawal needs.
3) Diversifying Private Investments: These allocations are designed to reduce overall portfolio volatility and enhance diversification beyond traditional asset classes.
It is important to recognize that investment risk is an inherent aspect of seeking long-term returns. Market volatility represents the natural fluctuations that can occur along the path to achieving your financial objectives. Our disciplined and diversified approach is designed to navigate such periods effectively.
We remain committed to actively monitoring market developments and aligning your portfolio with your long-term objectives. Please do not hesitate to contact us if you have any questions or wish to discuss your portfolio in further detail.
Sincerely,
Stephen W. Miller, CIMA, CRPC® James E. Miller, CFP®
Senior Financial Advisor Senior Financial Advisor
J. Parker Morris, CFP®
Financial Advisor