Matt on Markets: Palpable Concerns

March 31, 2025  | By Matt Pierce, CFA

It is generally an exercise in futility to ascribe a single issue to a decline in market prices, particularly on a day-to-day basis. The raft of policy measures being proposed and the speed with which they’re being implemented by the new administration make it all the more dizzying to pinpoint the exact cause.

Moreover, we often assign human agency to market actions where none exists. The volume of passive flows, primarily inflows for the last several years, equate to a sizable percentage of trading that’s essentially on autopilot. You get a paycheck. Your 401(k) contribution hits your account. For most folks, that goes into the default target date fund, which is essentially just an age-matching exercise. You’re “x” years old, and therefore you will retire around year “y.”  Those funds are generally passive in nature, meaning the manager invests the money based solely on the size of the components. Stock 1 is “x” percent of the index. Buy stock 1 at “x” percent. At no point in that sequence was a single thought given to geopolitics, the economy, or the price being paid. 

There’s a second layer of systematic trading that takes place solely based upon changes in price and volatility of the market. They often amplify movements in either direction; for example selling elsewhere begets selling within those strategies. But again, zero thought to the prevailing environment.

Events matter. I mention this merely to make the case for thoughtfulness and humility in pinpointing the exact source of market action. The above structure can translate into rather benign effects triggering outsized market movements. It also results in the inverse: seemingly seismic shifts can go ignored for long stretches of time. Many of the probable causes of our present spate of volatility could fall in that latter category. Now that I’ve (hopefully) lowered the bar for thoughtful explanation; let me attempt to thoughtfully explain.

First, there’s a meta-analysis that perhaps warrants further exploration. I think this abstracted nature of markets and the vast complexity outlined above breed uncertainty and doubt, whether consciously or not, in the minds of its participants. The mere participation in and of itself is a source of instability. I think participation denotes willingness or consent on the part of the participant. For many, they’ve been thrust into that role. Capital markets have been with us for centuries, but their centrality to our livelihoods is a relatively new phenomenon and a virtual necessity of our present system due to the effects of inflation. None of this matters when “number go up,” but volatility and shocks snap it back into focus. A true investigation of this is well beyond the scope of a “quick” market update, but I won’t close this brief treatment on such a dour note.

How does one respond to this? One thing I think we, as a firm, do better than most is our focus on the “why?” Why are you doing this? Why are you subjecting yourself to the stress that investing can entail? What is your purpose behind the investment? You need to have a singular focus on the goals. The means must be a byproduct of your ends. We also talk a lot about philosophy. What are your core beliefs around investing? That is your foundation. It’s the lens through which you filter the cacophony of ever-present noise in our modern world. The buttress against the inevitable periods of challenge you will face in the markets. Without that, we’re completely unmoored. Adrift in the ceaseless wave of headlines. Here again, I think we do a better job than most, but we can and are actively seeking to do better in the months and years ahead.

Turning to the here and now. The overarching issues might be that the sum of all policy induced concerns is greater than its parts, and the parts are numerous. Cast this against a backdrop of arguably very expensive U.S. stocks, particularly among the leaders, which would be disconcerting even absent the wider policy concerns. The aggregation of all concerns and their spillover effects into each other is perhaps the ultimate concern. The linkages and sequence of causality is hard to identify, but its existence seems clear. 

As a hypothetical chain of events, tariffs might feed back into inflation, inflation remains stubbornly above the Fed’s target, inflation above target keeps rates higher for longer, higher for longer means government borrowing costs remain elevated, government borrowing costs remaining elevated means interest expenses feed back into already unsustainable deficits, and on and on. If that’s confusing, that’s kind of my point. I think about this daily, and it still makes my head spin on occasion. Much of this isn’t even coming as a surprise to me, and yet, it is still jarring.

So as to not incense half the readers, I do not view this as a Trump versus Biden thing, a Democrat versus Republican thing, or even solely a recent thing. Version 1.0 of the current administration played its role. I wholly believe the prior course was unsustainable and has been for several decades. However, the acute state it reached under the prior administration — sky-high debt, wartime-level deficits, high and rising interest expenses, and short-term financing — are recipes for disaster. It’s increasingly clear that we are in a fiscal crisis. Perhaps the climax of that could have been further kicked down the road. That very ability is a prime culprit for the state in which we find ourselves. It’s always been tomorrow’s problem, but eventually, tomorrow does become today. The sum of yesterday’s makes today’s eventual arrival all the more painful. There are only so many ways to address the problem, and the more it’s delayed the more constrained options become. The problem seems inarguable at this point. However, the correct path certainly is arguable, and with each potential course of action, it seems fair to ask if the cure is worse than the disease. A verdict here is both foolhardy and, again, beyond the scope of an increasingly not-so-quick update. Let’s turn to the more practical. How should we respond to this?

Let’s pick up where we left off above. What’s your foundation or philosophy? Ours is about resilience. It’s about owning a broad mixture of assets that behave differently in different environments. It’s seeking to be thoughtful on the price we pay for those assets. It’s not chasing fads or what worked recently. It’s also not panicking in response to every headline. It’s not always popular; it’s far from sexy. It’s not the path to fabulous riches, but it is hopefully a path to consistent preservation and compounding over time. To us, particularly in times like these, it sure beats the alternative. We have strategies that embody this philosophy to different degrees based upon the individual, but this current runs through each. If you’ve got questions about your specific strategy, your advisor has answers, but we also hope to do a better job of detailing the strategies in letters to come.