A Message from MMBB about Recent Market Volatility

U.S. equity markets have declined sharply over the past two to three weeks. In contrast, ex-U.S. equities have performed well year to date. Volatility has also spread to other asset classes.

The equity market sell-off has largely been driven by four contributing factors:

1. Tariffs weighing on the U.S. growth outlook– tariffs effectively represent a tax hike on consumers and businesses, and worries about a broader trade war could lead to companies delaying investment decisions and lower capital expenditure.
2. U.S.technology leadership challenged by China– DeepSeek’s release of an AI reasoning model that rivals ChatGPT at a fraction of the cost raised questions about the perceived competitive positioning held by U.S. technology companies and the return on investment of the substantial capital invested and pledged by some large U.S. companies.
3. Stretched valuations, concentrated markets and positioning– U.S. equity markets had become expensive and concentrated, and overly positive market positioning has made the equity market vulnerable to a softening economic outlook and deteriorating investor sentiments.
4. Global ex-U.S. policy developments– while risks remain around the economic growth outlook for Europe and China, especially in the context of further tightening global trade relationships, there has been renewed interest in non-U.S. equities due to government policies that are perceived to improve economic activity.

Investors should brace for continued heightened market volatility given shifting economic conditions, rapid technological advancements, geopolitical tensions, and evolving regulatory and policy landscapes. The recent sell-off also highlights the importance of having a well-diversified portfolio. While short-term market movements can be unsettling, maintaining a long-term investment perspective is crucial. Losses hurt more than gains feel good, and market lows can result in emotional decision making. MMBB’s financial planning specialists are available to help members align their investment strategies by goals with varying time horizons.