CWG Investment Committee: Market Update

Good morning, Crown clients – We have not seen a meaningful decline in the stock market since last August. As you may recall, we believe that during periods of volatility, we prefer to “over-communicate” to keep you well-informed. Feel free to review the information below and contact us if you have any questions. 

 What Happened in the Market?

• Yesterday, the S&P 500 had its worst day of the year, sinking 2.7%. The Nasdaq dropped 4.0% in its worst session since 2022.
• Just 21 days ago, the S&P 500 hit a record high. Last week, we explained that the pullback since then was a growth scare, with the potential to become a market correction—defined as a decline of over 10% from recent highs. As of yesterday, the S&P 500 is down 8.6% from its high, and the Nasdaq has fallen 14% from its peak.
• Historically, the S&P 500 experiences a correction about once every 12 to 18 months, according to Bloomberg.
• While corrections can feel unsettling in the moment, they help reset valuations and often create opportunities for long-term investors.

What Caused Yesterday’s Drop and the Recent Pullback/Correction?

• Late last week and again over the weekend, the Trump administration made it clear they are willing to maintain current tariff policies—despite their adverse impact on the economy—in pursuit of long-term objectives.
• This stance shocked the market, as the prior consensus was that the tariffs were only a negotiating tactic. A classic day of fear-driven trading on Wall Street followed.
• Wall Street is now forced to recalculate the chances of a recession, as tariffs disrupt global supply chains, reduce trade, slow growth, and weaken corporate profits.
• This recalibration process is being reflected in the stock market through increased volatility.
• The unwinding of the bull market’s momentum has led many high-valuation stocks to plummet.

What Do We Think Happens Now?

• While a recession is not probable, the increased number of policy changes and signs of slowing growth have elevated risk levels.
• We are making appropriate adjustments to investments to reflect the changing market conditions.
• We expect continued volatility, with significant moves both up and down.
• The economy remains in good shape, with solid job numbers and corporate earnings growth.
• The likely impact of current policy changes is a moderation of economic and corporate earnings growth, rather than an outright decline.
• Whether a recession occurs may depend on how the Trump administration responds to market signals, though it will take a couple of months for data to confirm any significant slowing in growth.