Road to Nowhere: Is Your Portfolio Built to Endure 2025? (Trade wars & policy swings)
Hold tight, wait ’til the party’s over, Hold tight, we’re in for nasty weather, There has got to be a way (Talking Heads)
Markets whipsawed over the past week after a little-known federal court blocked Trump’s “Liberation Day” tariff rollout—only to have that decision reversed 24 hours later. The situation remains fluid with heightened uncertainty over U.S. assault on global trade. The tariffs’ future will depend on the outcomes of the ongoing appeals process that could take months to sort out. To paraphrase the talking heads – this court process and potential return to the tariff wars may not burn down the house into a recession but may lead to a road to nowhere for the markets.
In just two trading days, stocks surged and then gave it all back, reminding investors how sensitive markets remain to political headlines, tweets, and policy pivots. For many, it echoed the chaos of the 2020 COVID crash—another round of whiplash, rising anxiety, and what we now call “volatility PTSD.”
More than just shareholders, many business owners are feeling the brunt of this tariff circus. The legal tug-of-war over emergency duties has turned business planning into a gamble. As one entrepreneur put it, “Yesterday I was ready to manufacture in Vietnam. Today, I’m not sure.” That’s the nature of policy-driven markets: high-stakes decisions with little warning. For industries that plan months in advance – or seasons in advance – it’s not just risky… it’s risky business.
Advisor Call Center on Trade Wars and Policy Swings
Since the tariff-driven selloff and May’s sharp (and surreal) V-shaped rebound, we’ve seen a clear shift in investor sentiment—especially among retirees and pre-retirees without the cushion of a pension. Calls are coming in with the same core concern: Is now the time to de-risk? Or should I stay the course?
With the S&P 500 and Nasdaq now barely in the black for the year, those once-steady “stay invested” instincts are giving way to anxious questions about recession risk and whether it’s time to play defense—or head for the exits. In many cases, we’re helping clients navigate both the strategy and the emotion—providing hand-holding and reassurance, while staying focused on the long-term game plan.
Even if trade tensions escalate—primarily with China, Europe, Mexico, and Canada all back in the crosshairs—the broader economic backdrop of GDP, interest rates, inflation, consumption, and employment remains relatively stable… for now. But that stability is fragile. If tariff policy keeps swinging between political theater and legal limbo, it could spark real economic disruption. And let’s be clear: Mr. Market doesn’t bide well with uncertainty.
To borrow again from the Talking Heads: “We’re on a road to nowhere.” And oddly, that may be the best-case scenario for the balance of 2025.
Valuations remain elevated, bond yields are drifting higher, and earnings growth is expected to slow—which together suggest 2025 could shape up to be a break-even year at best. With the S&P 500 still trading at over 21 times next year’s earnings—well above historical averages—there’s little room for error. The market isn’t pricing in much downside, even as risks continue to stack up. That leaves investors walking a tightrope, with limited upside and growing vulnerability to shocks—unless, of course, a Fed put swoops in to save the day. This is why it’s essential now more than ever to have the right strategic strategy in place.
Time in the Market Still Beats Timing the Market
Discipline has never mattered more. One principle continues to hold up through every cycle: investors who stay invested through volatility tend to outperform those who try to outguess the market. Why? Because the biggest up days and worst down days tend to cluster—and missing just a handful of the best can set your long-term goals back by years.
Whether it’s dollar-cost averaging into your 401(k), rebalancing your brokerage accounts (which is essentially buying low and selling high), or selectively deploying cash into diversified portfolios during market pullbacks—these are the moves that build real wealth over time. Not predictions. Not perfect timing. Just consistent execution and a strategy built to last.
Tariff Clock Ticking
After two years of AI-fueled euphoria and above-average gains, cracks are starting to show. April’s drop wasn’t just a dip – it was a gut check on both portfolio structure and investor psychology. With Trump’s 90-day tariff “pause” ticking like a time bomb and stagflation chatter building, many investors are feeling queasy.
The instinct to sell is understandable. But trying to time the market with long-term money is like switching seats on a rollercoaster mid-ride—emotionally tempting, strategically reckless.
Instead, take a step back. Have your goals changed? Has your timeline shifted? Or are you simply reacting to a doom-scroll of headlines, algorithms, and economic noise? As Sir John Templeton famously warned, “This time is different” are the four most expensive words in investing. The events may change, but human reaction rarely does.
Stress Test Your Portfolio
Jon here. Volatility isn’t a glitch in the system – it’s a feature. It’s the toll we pay for long-term growth. And it’s a perfect reason to open your 401(k) or brokerage statement and see how your portfolio actually held up during the April crash.
During April’s drop, we ran real-time stress tests across our client portfolios. The results? Most of our all-weather allocations held up far better than the major indices, which fell between 18% and 24%. Some portfolios were near breakeven. That kind of resilience doesn’t come from hype, silver bullet products, or hero trades—it comes from structure. From thoughtful diversification. Not stock tips. Not illiquid, flashy investments pitched over steak dinners. Because at the end of the day, there’s still no such thing as a free lunch.
Whether your portfolio held steady or not during the last round of turbulence, now’s the time to reassess your risk, rebalance where needed, and ensure your strategy is built for what’s next. If we are in the eye of the tariff-led storm, more volatility—both in stocks and bonds—shouldn’t come as a surprise.
60/40 to 50/30/20- Modernizing the Mix
Staying diversified doesn’t mean standing still. For investors facing major life transitions – retirement, business exits, liquidity events—this is a smart time to revisit the playbook.
The traditional 60/40 portfolio still has its place. But let’s be honest—it hasn’t aged well. In a world where stocks and bonds often move in sync (see: 2022), and bonds have underperformed for four years running, the old formula needs a refresh. The 60/40 isn’t dead – it just needs some backup.
That’s why we’ve been guiding clients toward a more modern and resilient 50/30/20 allocation: 50% equities for long-term growth – 30% fixed income for ballast and income and – 20% liquid alternatives for true diversification and downside protection
For some moderate investors, we may even recommend a more balanced third/third/third approach.
That final 20% is where the real evolution happens—structured notes with built-in buffers, private credit, private equity, infrastructure, and real estate. These private alternatives offer market-like returns with lower day-to-day volatility, helping investors stay the course without riding every market headline.
Diversification Beyond the S&P 500 and Mag 7 Tech Sector
It’s well known that stocks form the core of long-term portfolios. But not all stock exposure is created equal. While many investors (and the media) focus on the largest U.S. companies, there’s a broader world of opportunity that often goes underappreciated—especially in volatile environments.
The S&P 500 and Dow Jones may dominate headlines, but both are heavily weighted toward mega-cap U.S. firms. And in recent years, a small group of tech giants—the “Magnificent 7”—has outsized influence, skewing performance and volatility.
To broaden your perspective in addition to our discussion on the addition of liquid alternatives to the traditional balanced portfolio, consider other corners of the equity market – namely small-cap stocks and international markets. These segments offer distinct characteristics and diversification benefits that can play an important role in weatherproofing a portfolio. Small caps in particular have lagged in recent years, but often outperform in post-recession recoveries and periods of U.S. dollar weakness.
Small caps have lagged but offer diversification benefits
Small-cap stocks represent companies with market capitalizations typically ranging from a few hundred million to a couple billion. This contrasts with mid and large-cap companies that range from tens to hundreds of billions, and mega caps which are now valued in trillions of dollars.
The Russell 2000 index, which tracks small-cap performance, has generated 5.0% annualized returns over the past decade compared to 10.5% for the S&P 500, as shown in the accompanying chart. (1) This performance gap has been particularly pronounced in recent years as the market concentration from large and mega cap companies has increased, especially in technology and artificial intelligence-driven sectors. Small-cap companies typically have less exposure to the technology sector and derive more of their revenue from domestic operations, making them sensitive to changes in U.S. economic policy and trade conditions.
Notably, small caps have struggled so far this year due to ongoing uncertainty around tariffs and economic growth. However, this has created potentially attractive valuations. Small-cap stocks are currently trading at more reasonable price-to-earnings ratios compared to large-cap stocks. The Russell 2000 currently has a price-to-earnings ratio well below its 10-year average. More striking is the price-to-book value of approximately 0.8x, considerably lower than the historical average of 1.2x. In comparison, many of the S&P 500’s valuation metrics are well above average, if not near all-time highs.
The interest rate environment is another important difference between large and small-cap companies. Small caps often rely more heavily on financing from floating rate debt than their large-cap counterparts, making them more sensitive to interest rate fluctuations. While this created challenges when interest rates rose rapidly beginning in 2022, the more stable environment since then could help. This is especially true if the Fed continues to cut rates later this year.
Many of these metrics point to the fact that small-cap stocks are more attractively valued than many other parts of the market. While large caps will continue to play an important role in many portfolios, this highlights the fact that there are opportunities in many other parts of the market as well.
International markets continue to be attractively valued
Another area of attractive valuations is international stocks, which are typically categorized into two main segments: developed markets (such as Europe, Japan, and Australia) and emerging markets (including countries like China, India, and Brazil). These classifications reflect differences in economic maturity, market infrastructure, regulatory frameworks, and more.
Although U.S. stocks have led global markets for much of the past decade, international stocks have outperformed this year. Specifically, the MSCI EAFE index, which tracks 21 key developed market countries, has gained about 17.5% year-to-date in U.S. dollar terms. The MSCI EM index, which tracks emerging markets, has risen 10%. (2) This has occurred despite global uncertainty due to trade.
Not only have these markets performed better this year, but valuation differences remain substantial. While the S&P 500 trades at elevated price-to-earnings ratios, international markets offer more attractive valuations, as shown in the chart above. This is partly due to political and economic challenges in many of these regions over the past ten years, some of which have begun to turn around.
One key difference between investing in the U.S. and internationally is that currency fluctuations can affect returns. In particular, the weaker dollar has created favorable conditions for U.S.-based investors. This is because foreign assets increase in value when the currencies they are denominated in strengthen, allowing them to be converted back to more dollars. This currency tailwind has been a meaningful contributor to the strong performance of international stocks this year, providing an additional boost beyond the underlying performance of foreign companies.
It’s important to diversify across regions and market capitalizations
For long-term investors, maintaining exposure to areas such as small-cap and international stocks can help create more balanced portfolios. This is especially true after the significant performance of large-cap stocks which have been driven by just a handful of the largest companies.
This is not to say that U.S. large caps will become less important. This is also not an argument for making significant changes to well-constructed portfolios. Instead, maintaining long-term portfolios is all about holding the right asset allocation across all these types of investments. By including more attractively valued parts of the market, we can potentially strengthen long run risk-adjusted outcomes, and take advantage of market opportunities. While any single asset class may underperform during certain periods, their different characteristics and return patterns can provide valuable diversification benefits over time.
The bottom line? If 2025 turns out to be a break-even year at best—with more volatility fueled by trade wars and policy swing – then maintaining a diversified portfolio and modernizing the traditional 60/40 mix with liquid alternatives may be the smartest way to smooth the ride and stay on course.
For more information on our firm or to request a complementary investment and retirement check-up with Jon W. Ulin, CFP®, please call us at (561) 210-7887 or email jon.ulin@ulinwealth.com.
- Russell 2000 and S&P 500, price returns, from January 2, 2015 to May 23, 2025
- MSCI EAFE and MSCI EM, total returns, January 1, 2025 to May 23, 2025
Diversification does not ensure a profit or guarantee against loss. You cannot invest directly in an index.
Note: This content is for informational purposes only and should not be construed as financial, legal, or tax advice. Please consult your financial advisor, attorney, or tax professional regarding your specific situation.
You cannot invest directly in an index. Past performance is no guarantee of future returns. Diversification does not ensure a profit or guarantee against loss. All examples and charts shown are hypothetical used for illustrative purposes only and do not represent any actual investment. The information given herein is taken from sources that are believed to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as NewEdge Advisors, LLC does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors.
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