The Pullback You Felt vs. The Portfolio You Saw: Portfolio Positioning and Market Update

U.S Equities: An Understandable Pause, Not a Change in Direction

You probably felt the pullback in the S&P emotionally. A decline of that magnitude is historically unremarkable, but the media headlines do a good job of making us feel differently. If you actually looked at your portfolio return, you probably shrugged your shoulders and went about your day.

We’ve got short memories. At this point last year, the S&P was on a path to almost a 20% decline. We know how the year ended up. Declines of 5% historically happen a few times a year. Declines of 10% happen about every year and a half. Declines of 20% happen every 4-5 years on average. The story is different each time, but the long-term outcome is the same.

When markets do decline, it’s the perfect time to assess your portfolio positioning and determine if the downside protection matches your objective. It’s also a perfect time to ask if anything fundamentally has changed or if it’s simply a short-term change in sentiment.

We believe it’s the latter. Inflation has cooled to roughly 2.4%, approaching the Fed’s target. Corporate earnings growth continues to meet and exceed expectations. The Fed seems content to at least hold rates, if not lower them. The dollar has stabilized. We see a healthy economy and reasonable valuations. The conflict in the Middle East is driving the short-term uncertainty and change in sentiment. Any pullback should be viewed as a buying opportunity for long-term investment dollars.

International Equities: The Breakout Is Real

It has been years since investors have been excited about international stocks. There’s been a regime change for market leadership. Unloved European equities continued their resurgence, the dollar’s 2025 decline has held and kept the currency tailwind intact for international stocks, and emerging markets are finding their footing from stabilizing trade dynamics from tariff policy and the concentration in the AI buildout in the regions.

We have been deliberate about this rebalancing. As the U.S. market continued to rise from easy monetary policy and superior growth, re-allocating those profits toward ignored international stocks is starting to pay dividends. We think it’s a compelling structural story.

Gold: To the Moon and Back

Gold crossed $5,000 per ounce for the first time in history in Q1. It’s doubled up the return of the S&P in the last 3 years. It’s been on a rocket ship to the moon throughout the decline in interest rates and global trade uncertainty from tariff policy. You would’ve thought a little geopolitical conflict would’ve sent it to Mars, but gold actually sold off once the conflict in Iran started, giving up about 10% of its YTD gains. We’re using this as an opportunity to reduce our allocation and take some profits, reduce our allocation to gold, and re-allocate across the portfolio. We still think gold has a place in the portfolio in the short and intermediate-term, but we aren’t willing to give back the gains on the monumental run of the last few years.

Fixed Income: Yields Are Your Friend

Boring bonds might be back. With rates at more historically normal levels, bond investors are getting paid a reasonable amount of interest and are carrying a fraction of the risk that they were during the ZIRP (zero interest rate policy) period. Bonds provided positive diversification in the first quarter and, in isolation, look like they could deliver mid single digit returns in the intermediate term.