Some Light Amidst the Darkness  

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Five Things You Should Know

1. Equity Markets – experienced a sell-off this week with U.S. stocks (S&P 500) down –9.02% and international stocks (EAFE) fell -9.00%. 
2. Fixed Income Markets – were mixed this week with investment grade bonds (AGG) up 0.73% and high yield bonds (JNK) down –2.88%. 
3. Tariffs – This Wednesday the Trump administration announced a new sweeping round of tariffs, instituting a base-line 10% tax on all global imports (excluding Canada and Mexico) and additional reciprocal tariffs on 60 countries. While tariffs were expected, the extent caught markets by surprise and sent risk-on assets lower as investors tried to digest and navigate the uncertainty around a ramped up global trade war. The estimated $650 billion in tariffs are higher than Trump’s previously stated goal of $500 billion, suggesting the initial announced rates will be used as a tool to hopefully renegotiate new lower rates with our global trade partners. 
4. U.S. Employment – Job growth came in stronger than expected last month with nonfarm payrolls rising 228,000 vs consensus expectations of 140,000 and average hourly wages increasing 0.3%. Despite the job growth, the unemployment rate ticked up to 4.2% as the labor force participation rate increased. 
5. Key Insight – [VIDEO] We begin the “good news” themed message this week with a video intro of our new colleague, and fantastic addition to the team, Derek Hare. [ARTICLE] Data, Dividends and Diversification all are playing their respective roles to help offset the dire investor sentiment plaguing markets currently. We discuss some reasons for optimism among the gloom.

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Insights for Investors

By Tim Mitrovich

Some Light Amidst the Darkness 

Breathe 

As I sat down to write this amongst the market tumult this morning the following lyrics from Breathe by Maverick City came to mind: 

This goes out to the worried 
This goes out to the stressed 
Sorting out a million thoughts running through your head 

To everyone that’s waiting 
For better days ahead 
Tired and frustrated and leaving words unsaid 

Please don’t hold your breath 

Just breathe… 

For those of you able to join us at last night’s Quarterly Event with Stephanie Link that was her message as well.  

I find at moments like this, beyond remembering to breathe (seriously), being as straightforward as possible is best. 

To be clear, I am very empathetic to the feelings and emotions many of you are undoubtedly struggling with of late. Helping people and easing their burdens is why I love what I do, and so hearing the angst in people’s voices and messages is both hard but also a chance to really be there for people in a way the team and I relish as well.  

That said, as much as people may not want to hear it today, it is critical for us all to remember the following: 

1. Moments like this are a part of being an investor 

2. It is a wishful, but dangerous notion, to believe such moments can be “timed”, and perhaps most importantly 

3. Contrary to how these moments feel, they are NOT forever NOR are they fatal 

It isn’t that I don’t experience some of the same feelings, but after 30 years of experiencing many tough markets and scares I have engrained the above into both my head and heart and that is why: 

A) You will never see me panic. 

B) I will never sign off on fearful selling to our dear clients’ long-term detriment no matter how good or easy it may feel in the moment. 

C) No one will ever convince me that such moments aren’t more of an opportunity than a threat. 

To give in at these moments will do far more destruction to one’s financial future than any bear market will do, but for the prepared they are a tremendous opportunity. 

What Do We Do Now?! 

Some readers may accuse me of being blindly and naively optimistic during these times… 

However, you may recall, we cautioned readers on a slowing economy, market valuation and the corresponding risks repeatedly leading up to this correction (see 10/18/24, 12/6/24, 1/10/25 and 2/7/25 to name a few). 

As the famous Buffett quote reminds us, “Be fearful when others are greedy and greedy when others are fearful.” 

And thus, while a common, and understandable question, during periods of intense volatility is “What do we do?”  

I know the hidden question is “Do we sell now?!” 

The answer is we already did it and no, if anything, we buy.  

We have been diversifying portfolios into different parts of the equity market, alternatives and fixed income for some time, all of which have helped immensely during this time to buffer volatility, but even more importantly to set us up to be able to take advantage of this sell-off. 

So as much as this may scare many of you, the next step is to begin to wade into the market. We’ve been waiting, even hoping for such an opportunity, which we see as a reward for prudently reducing risk while others chased the market into the peak. 

These trades and levels were all set before the sell-off even began. 

My confidence and conviction are not weakened by the collective worry, rather the magnitude of worry tells me we will once again be proven right in time. 

One big takeaway from last night’s talk with Stephanie Link is the economy is on much more stable footing than many pundits want to give it credit for. (Our two-part interview with her is coming April 11^th and 18^th). This piece highlights some of that underlying strength that people are looking past due to the tariff headlines. 

If you are looking for negativity, there is plenty to be found, but this isn’t one of those pieces.  

We wanted to share this week some facts and perspectives to help you be able to see over any near-term valley to the next ascent. 

A Slow Down is NOT a Recession 

We spoke to the slowing data for a while now, but lost in the discussion around various economic indicators is that a slowdown does not mean the economy is headed into a recession. While some may try to grab headlines by “increasing their recession odds,” it is worth noting that just about everyone we’ve seen still lists a recession as a less likely outcome than no recession. 

With tax cuts likely in the back half of the year, along with cuts in the Fed rate, we are of the position that the current levels of bearishness are misplaced. 

On the economic front, while there is undoubtedly uncertainty around tariffs and such uncertainty is likely to have some chilling effect on equity markets and the economy, it’s also important to take into account the strength of momentum in many aspects of the global economy.  

As summarized by Brian Wesbury of First Trust last Thursday in response to the Q4 GDP report, “The most important part of this morning’s report was on economy-wide corporate profits, which grew 5.4% in the fourth quarter vs. the third quarter and are up 6.9% from a year ago.  The best news was that profits in all major areas were up. Profits from domestic non-financial industries grew 2.0%, while profits from domestic financial firms grew 10.7%. Profits from the rest of the world increased by 18.8% for the quarter.” (First Trust, 3/27/25) 

Furthermore, as today’s jobs report demonstrates while labor may be slowing it is still strong and nowhere near recessionary levels. For March, nonfarm payrolls increased 228,000, easily beating the consensus forecast of just 144,000. (Bloomberg, 4/4/2025) 

Remember, the market and economy are not always the same thing and often disconnect for a season. With corporate profits still strong and international momentum beginning to turn, there are more reasons for optimism than many may suspect if one is willing to look a few months out.  

Looking Overseas 

And while US investors continue to be focused on the home front, many other countries’ equity markets are having a great start to the year with a number of analysts believing the trend could continue. 

One such shop with a constructive outlook on Europe is the team at MRB. They explained the recent surge in both Euro markets and sentiment by pointing out two important factors stating, “The shift in fiscal policy attitudes in the euro area is profound, and should eventually help to release some of the massive pent-up demand that exists in the region. For instance, the euro area business sector has been quite profitable but generally risk-averse, albeit still willing to hire and offer better wage gains than last decade. The euro area household sector has been sitting on a mountain of excess savings that built up during the pandemic3 (chart 3). Remarkably, despite the tight labor market and solid real income gains, this mountain of excess savings has continued to increase, in marked contrast with the rundown in such savings in the U.S. Euro area consumption is still well below trend despite much improved household income and balance sheets compared to last decade.” (MRB 3/28/25) 

The team at Gavekal also remains constructive on Europe and noted this week that, “The trend may only be a few months old, but for now it is reversing the sustained US outperformance that has held sway especially since 2016. This shift is mostly explained by a narrowing valuation gap rather than any great change in earnings. The questions are what explains the reversal, and will it prove more than a flash in the pan.” (Gavekal, 4/2/25) They pointed to looser fiscal restrictions (e.g. more government spending) as one big reason for the narrowing of the valuation gap between US and European stocks, and likely catalyst for a continued positive outlook. 

Chasing hot markets/stocks can feel fun and exhilarating, while diversification and the discipline to maintain it can feel like a punishment, until things turn as they have here in 2025.  

We would never admit to consciously investing for a “thrill”, but with 30 years of watching investor behavior, it’s pretty clearly a subconscious driver for many and a real obstacle to properly designing/diversifying one’s portfolio. 

As the famous quote from American Economist Paul Samuelson cautions, “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” 

Budgets & Bonds – Not all bad here in the U.S. 

Tariff angst is clearly the dominant headline currently, but the upcoming budget and related tax cuts could help offset those concerns and help reignite growth in the back half of 2025. This view is shared by others who point out that concerns around US fiscal policy are likely overdone. Will Denyer of Gavekal, stated in a recent podcast conversation, “I’m skeptical that all of this is going to add up to an overall tightening of US fiscal deficits, especially given the fact that, as you say, the Republicans are working on a budget that is estimated to expand the deficit, not shrink it, and very likely will overwhelm any savings from DOGE. We don’t know that for sure, but that seems to be the most likely scenario.” (Gavekal, 3/14/25) 

Analyst Tom Essaye also does not yet see a recession when he evaluates what is often referred to as the “smart market”… the bond market. He pointed out “So far, bond markets are not sending the type of signals that confirm these economic fears. I say that for two reasons. First, corporate bond prices rose (both investment grade and junk) in the first quarter and that does push back against rising recession fears (if the bond market was worried about a recession, we’d expect corporate debt to be weaker or flat, not up moderately) … Second, credit spreads were not confirming these recession/slowdown fears, although there is some mild deterioration.” (Sevens Report, 4/1/25) 

Beyond likely tax cuts and deregulation, the timeline for the next rate cut from the Fed has likely moved up along with the magnitude of those cuts. For those that doubt the power of such catalysts I would remind you of the quickness and velocity of the market’s rebound after the COVID sell-off long before there was any clarity around, or resolution of, that situation. 

Investor Sentiment Remains Bleak – That’s Likely a Positive 

I’ll be blunt, investor sentiment has been, and is even more so today far too dire for the facts of this situation. 

Outside of stable macro data and bond markets, perhaps the biggest reason we remain optimistic regarding the market over the intermediate to long term is the extreme levels of investor pessimism which still sit near October of 2022 levels (when markets were in the midst of an actual bear market). As summarized by Tom Essaye, “Investors expect a lot of bad things to happen in the coming months. If they are wrong, these declines will have been an opportunity to buy good companies at substantial discounts.” (Sevens Report, 3/27/25) 

Jeff deGraaf of RenMac continues to speak out on sentiment and the likely contrarian play of fading current negativity stating, “In the short-term, we see sentiment as the more dominant feature of this market, and right now sentiment is set up bullishly with many advisors, hedge funds and consumers anticipating weaker stock prices.” (RenMac, 4/1/25) 

While investor sentiment may align with market movements for a time, in my experience more times than not sentiment simply reflects current realities, and at extremes it is something that should be faded not followed. 

As of this morning the CNN Fear and Greed Index sits at 4 (see below). We saw those levels in December of 2018, and at the depths of March of 2022.  While there is no question tariffs are going to create some short-term economic pain to equate them to uncertainty or disruption that existed at the beginning of the pandemic when many feared a death rate of 5-10% is overdone in our opinion. 

What usually happens after times of such fear and uncertainty? 

As I stated in the intro above, far from being “forever and fatal” it fades and proves to have been an opportunity for the disciplined. 

Buying low is hard, and this is why doing so means you have to do it while all those around you are panicking and telling you how foolish you are. 

To quote one of the best investors of all-time Peter Lynch, “The real key to making money in stocks is not to get scared out of them.” 

Income and Dividends Provide a Path 

Not only is fixed income finally paying solid yields these days, as well as serving as a risk-off hedge during the latest pullback, so are many other asset classes from private real estate, credit and even dividend paying equities. 

For those relying on their portfolios for some or all of their income needs, this is good news. 

A portfolio designed to meet one’s income needs negates the need to fear volatility and/or sequence of return risk, because liquidating one’s holdings incrementally is not a function of the plan. 

Beyond bonds and real estate, value-oriented equities are not only providing a nice hedge against the volatility in growth stocks, but also project to see solid growth in their dividend yields. 

As noted by David Kostin of Goldman Sachs recently, “Unlike the equity market, dividends did not price in post-election exuberance and have been notably resilient amid market volatility … We forecast S&P 500 dividend growth of 6% year/year in 2025, which represents a payout ratio of 30% and dividends of $80 per share. Realized and expected earnings growth are the most important variables in our model of forward dividend growth. S&P 500 EPS grew by 10% year/year in 2024 and we forecast 9% EPS growth in 2025.” (Goldman Sachs, 3/7/25) 

Dividends, rents, bond payments from investment grade bonds are all very resilient – one need only look to how they performed during COVID or the 2022 bear market to see this in action. 

In Closing 

While uncertainty and reasons for concern undoubtedly exist, the reality is that is almost always the case. Furthermore, there are usually good reasons for optimism and that is certainly true today. 

While most topics that come to mind regarding the markets and economy are framed in terms of absolutes such as good or bad, the more constructive way to view both challenges and opportunities is in light of investor expectations. Doing so is far more likely to help you understand the intermediate-term direction of markets than attempting to predict outcomes. Right now expectations are ridiculously low and a small hurdle for markets to find footing from before too long. 

We were not reckless with our risk budgets within portfolios coming into 2025 and therefore are not only not panicked but looking forward to being rewarded for our discipline. Furthermore, while there are certainly challenges today, there are also many positives. 

Process, not prediction, is the repeatable path and we are honored to walk it with so many of you. 

As we head into this weekend, I am not fearful but rather focused on how we can once again go against the grain to improve our collective futures. 

As Rudyard Kipling so wisely wrote many years ago: 

If you can keep your head when all about you
    
Are losing theirs and blaming it on you,    

If you can trust yourself when all men doubt you, 

But make allowance for their doubting too;    

If you can wait and not be tired by waiting… 

Yours is the Earth and everything that’s in it… 

(Link to full poem: https://www.poetryfoundation.org/poems/46473/if—) 

Take heart and hold on, we are right alongside you, 

Tim and the team at TEN Capital 

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Data, Just the Data

• ISM Manufacturing Index – fell into contractionary territory with a reading of 49.0 in March vs expectations of 49.5. The new orders component was hit the hardest falling to 45.2, the lowest level since May 2023.  

• U.S. Jobless Claims – Initial claims fell by 6,000 last week to a total of 219,000 and better than expected. On the other hand, recurring claims saw an increase of 56,000 to 1.903 million, the highest since November 2021.  

• China PMI – ticked up to 51.8 in March for the highest level since November. This marks the 17^th consecutive month of growth for Cina’s private sector.  

• U.K. Manufacturing PMI – The March reading saw a slight upward revision to 44.9, but still remained well into contractionary territory and marked the lowest reading in 17 months.