Investment Policy Committee Update - May 2025

Our Investment Policy Committee (IPC) once again emphasized the importance of patience and discipline amid market volatility, particularly following the sharp but short-lived selloff earlier this year. Following the lows in early April, the rebound in equities has provided us a strategic opportunity to reduce risk in a more tactical way. While we have reduced risk overall, we do believe the market swings early in 2025 were driven more by sentiment and forced selling than by deteriorating fundamentals.

Since February, global markets have been rocked by a series of rapid and unpredictable trade policy developments. The implementation of tariffs on Canadian, Mexican, and Chinese imports in early March triggered swift retaliatory actions, exemptions, and delays, highlighting the volatile nature of current policy shifts. The situation escalated dramatically on April 2nd with the U.S. announcing sweeping tariffs on nearly all imports (excluding Canada and Mexico), targeting 57 countries. This “Liberation Day” announcement led to a historic market selloff, with the S&P 500 plunging 14% in three days and the Nasdaq entering bear market territory. However, markets rebounded sharply after a partial tariff pause on April 9th, underscoring the extreme sensitivity of investor sentiment to policy headlines.

Beyond trade, markets have been navigating a complex web of geopolitical tensions, inflation shifts, interest rate expectations, and even a U.S. credit rating downgrade. These overlapping uncertainties have created a uniquely volatile environment. April exemplified this instability, with the S&P 500 experiencing a record intra-month swing—falling over 12% before closing the month nearly flat. This backdrop has reinforced the importance of diversification and the need for strategies that extend beyond traditional stock and bond asset classes to manage risk effectively.

Amid heightened volatility, our alternatives as well as gold have proven to be reliable portfolio stabilizers. Since the February rebalance, gold prices surged 11% as investors sought safety. Central banks have continued to accumulate gold reserves, reinforcing their role as a geopolitical hedge. Interestingly, gold has shown a low correlation with Treasury returns, enhancing its value as a diversifier. With this rebalance, our IPC has tactically trimmed its gold position to lock in gains while maintaining long-term conviction in its role. Other diversifiers, such as international developed market value stocks and U.S. Treasuries, have also contributed to portfolio stability, benefiting from regional defense spending and a flight to quality.

Investor sentiment has rebounded dramatically since the lows of early April. The “Fear and Greed” index swung from extreme fear to greed, and recession concerns have eased significantly. Despite this optimism, our IPC remains cautious. While we don’t expect long term influence, the full economic impact of tariffs has yet to materialize, and markets remain highly reactive to geopolitical and policy developments. The Committee expects continued volatility, with alternating phases of escalation and de-escalation likely to drive short-term market behavior.

In light of ongoing uncertainty, we are maintaining a cautiously optimistic outlook. While short-term inflationary effects from tariffs are expected, they are seen as transitory and unlikely to derail the broader disinflation trend. The greater concern lies in potential global growth headwinds from disrupted supply chains and shifting business sentiment. As they have in the past, the Fed is generally expected to prioritize economic softness over inflation, potentially delivering further rate cuts. In this environment, for tax deferred assets, we are reducing active risk, focusing on high-conviction ideas, and reinforcing broad diversification to balance upside potential with resilience.

We will continue to provide ongoing updates on our views and investment positioning through regular IPC posts, and as we meet with you. If you have questions about our strategy, please let us know and we can review the details at our next meeting. While we don’t recommend fixating on short-term market fluctuations, if you would like to check specific investment performance across all your accounts, our online Orion Portal is available 24/7.

Thank you for your continued trust and allowing us to coordinate your asset management as part of our Family CFO services!