The Storm Before the Calm – Wealthstone Monthly Market Commentary | March 2025

Historically, market corrections and volatility are common, yet investors understandably grow concerned when experiencing them in real-time. The first 10 weeks of 2025 have been marked by significant volatility as the market adjusts to the policies and global economic dynamics unfolding at the start of President Trump's new administration. The S&P 500 officially entered a correction, defined as a drop of at least 10% from recent highs. Although it briefly rebounded with a 2% gain on March 14th, investors remain cautious, uncertain whether this volatility marks a temporary setback or a more significant turning point.

Several factors have contributed to recent market turbulence:

Trade Policy Uncertainty

One of the most immediate sources of investor anxiety revolves around the Trump administration's heightened tariffs on Chinese and European goods. Historically, tariffs have been contentious economic tools, introducing complexities that ripple through global supply chains and potentially fueling inflation. While tariffs during Trump's first term often failed to result in widespread inflation—companies frequently absorbed tariff costs rather than raising consumer prices—uncertainty around their duration and magnitude creates significant anxiety. Research from Goldman Sachs recently lowered its year-end 2025 S&P 500 target to 6,200, citing these tariff concerns and policy uncertainties (Reuters, 2025).

Geopolitical tensions are further complicating investor sentiment. The ongoing Ukraine conflict, despite signs of potential resolution, continues to influence global commodity prices, particularly energy and agriculture. Ukraine has been unable to export grain effectively through the Black Sea, leading to elevated food prices globally and worsening food insecurity, particularly in Africa and Asia. The European Union attempted to mitigate this issue by temporarily lifting import restrictions on Ukrainian grain; however, this has inadvertently created economic challenges for EU farmers, highlighting the delicate balance of global trade dependencies.

Meanwhile, geopolitical risks extend beyond Europe. Increasing tensions between China and Taiwan are another significant factor, with the semiconductor industry particularly vulnerable due to Taiwan's dominance in advanced chip manufacturing—critical to the technology sector and global economic stability.

Federal Reserve Policy and Inflation Concerns

Despite relatively encouraging inflation data, including the February CPI coming in at a modest 2.8% year-over-year increase, the Federal Reserve remains hesitant to signal a more aggressive shift toward interest rate cuts. Fed policymakers recently revised their inflation outlook upward in response to tariff uncertainties, potentially delaying anticipated rate cuts until later this year. Historical data suggests inflationary concerns significantly influence Fed policy, and this cautious approach is likely to remain until there is clearer evidence of sustained price stability and diminished economic uncertainty.

Concerns about the artificial intelligence sector have also amplified market volatility. Competition from Chinese AI companies, combined with recent technological developments such as DeepSeek’s cost-effective AI models, has raised questions about future demand for high-end hardware from companies like Nvidia, AMD, and Broadcom. Nevertheless, the global AI industry remains in its early stages of adoption—still below double-digit percentages globally. In my view, the long-term growth trajectory for AI remains robust, particularly considering the expanding applications in robotics, autonomous driving, quantum computing, and even commercial space exploration. Therefore, short-term setbacks within the AI sector may represent compelling investment opportunities rather than structural threats.

In terms of outlook, the market's direction largely hinges on three key scenarios. First, if trade disputes de-escalate, particularly with the EU, Canada, and Mexico, markets could stabilize quickly. The second scenario involves sustained volatility driven by persistent trade tensions and geopolitical uncertainties. Lastly, technological advancements in AI and emerging industries could lead to renewed optimism, potentially fueling another strong market rally.

At Wealthstone, we remain committed to a disciplined, strategic approach. Our portfolios are diversified across large-cap U.S. stocks, technology, defensive sectors, and alternative assets, positioning us well for various economic conditions. Corrections, while uncomfortable in the short term, historically occur roughly every 1.6 years, with an average recovery period of about four months. Therefore, we view market corrections not as reasons to panic but as strategic opportunities to enhance long-term returns.

Ultimately, while current market dynamics can feel challenging, our approach remains grounded in historical evidence, rigorous analysis, and strategic discipline. Should you have concerns about your investments or broader economic conditions, please reach out. I am always here to discuss your portfolio strategy and ensure alignment with your long-term goals.

Zak Gardezy, CFP®

Founder, Wealthstone Private Wealth Management

Email: zak@wealthstonepwm.com

7014 E. Camelback Rd.

Suite B100A

Scottsdale, Arizona, 85251

Sources:

- Goldman Sachs Market Outlook (Reuters, March 2025)

- U.S. Bureau of Labor Statistics (February 2025 CPI Report)

- Federal Reserve Economic Projections, December 2024

- Bruegel Institute: European Union Grain Imports from Ukraine (March 2025)

- Morningstar Analysis on AI Industry Trends (March 2025)