Finding Perspective & Opportunity Amid Market Volatility & Recession Fears
By: Allison Schmidt, Financial Advisor, CFP ®, CPA
We wanted to share a quick update about what’s been happening in the stock market recently. The stock market has stumbled with the S&P 500 and Nasdaq declining year-to-date.1. As many of you know, our investment process at Higgins & Schmidt Wealth Strategies is driven by the movement of the S&P 500, to ensure appropriate response to market changes. The recent downward trend on the S&P 500 has triggered a reallocation across our portfolios. To make sure to keep you updated, we’re sending along a note about the reallocation and commentary about the current environment.
What is the Higgins & Schmidt Wealth Strategies investment process?
This week, the market has experienced a decline, with the S&P 500 falling 10% from its most recent all-time high set in February 2025. This threshold triggers our investment management process to strategically increase stock positions within our client portfolios. Our objective is to capitalize on these lower prices while ensuring that our clients maintain an appropriate equity exposure throughout various market cycles, ultimately aligning with their long-term financial goals. With the recent dip in the market, we see it as a nice opportunity to adjust our strategy and make the most of those lower stock
Chart 1: The S&P 500 experiences pullbacks on a regular basis
History shows us that these moments of decline occur on a regular basis (see chart 1). We believe that periods of uncertainly often lead to significant long-term opportunity. Staying invested and slightly adding to equities during these times can help capitalize on the eventual market recovery, rewarding those who maintain a disciplined approach and are committed to their long-term investment strategies. We believe navigating through those environments is a more successful strategy in the long run than trying to avoid them or selling into them.
What is concerning investors?
Tariffs have garnered the most attention and some investors are now wondering if there will be a recession. These uncertain market and economic environments can make it challenging for investors to maintain perspective.
With the volume of incoming information, I’ve found it important to take a step back and remember the difference between how individuals and households feel about the economy versus what drives financial markets. For example, when the prices of groceries or gas increase, this can be frustrating and challenge personal budgets, however, it may create potential opportunities in investments that can benefit from price increases. As investors, in the current environment, it’s important to remain objective and try to distinguish between our personal experiences with the economy and the factors that influence long-term investment returns
While the economy and stock market are not the same thing, they influence one another in important ways. When economic growth is strong, corporate earnings tend to grow which can boost share prices, and vice versa. Similarly, stock and bond markets can sometimes serve as a leading indicator for the broader economy since they reflect the forecasts of millions of investors.
If you’ve been investing for a long-time, you know that this does not mean that the market is always correct, in the short-term it can get information very wrong. A good, recent example is that some investors and economists have been predicting a recession for nearly three years. Just a year ago, many believed a recession would be imminent due to inflation or even academic indicators of recession, such as the “inverted yield curve,” but it has not proven to be reliable this time around.
Instead of a recession, the economy has grown steadily in the past few years and equity markets have performed well. Despite the current pullback, the S&P 500 has gained over 60% since the market bottom in late 2022,2 while the Nasdaq has risen 78%.3
Of course, there will eventually be a recession. However, these examples show that predicting the timing of economic downturns is difficult. Investing based on the assumption of an economic downturn may lead to poor financial decisions, which is why it’s important to align investment portfolios with long-term goals rather than near-term uncertainties.
Chart: Uncertainty around economic policy has increased
Why have recession concerns risen?
We like to use history as a guide. Historically, recessions occur when the business cycle enters its later stages, or an external shock takes place, such as a pandemic or financial crisis. The current business cycle has shown signs of slowing but has not contracted just yet. Instead, a possible trade war represents an outside shock to consumers, businesses, and global supply chains. Additionally, slower growth – or even a technical recession (two consecutive quarters of negative growth) – are quite different from situations like the 2008 global financial crisis or 2020 pandemic shutdown.
The administration has said there may be a period of short-term “turbulence” in the economy. Even if tariffs do not directly harm growth, they have created an environment of uncertainty, as shown in the chart above. The administration has acted more swiftly with broad tariffs compared to President Trump’s first term, making the outcome harder to predict. Only time will tell if tariffs will be fully implemented, or if agreements with major trading partners will be reached.
Additionally, tariffs have often been used as a negotiating tactic for broader policy objectives and not ultimately implemented as outlined. In the past, market reactions to tariff announcements were more dramatic than their actual economic impact. In 2018, the market fell as tariffs were implemented, but earnings growth was still strong, and GDP was almost 3% that year.
While this uncertainty may be uncomfortable and has led to market swings, it’s in periods of economic strength, like we see today, that policy shifts can be most easily absorbed. It’s also important to remember that periods of slower economic growth, while uncomfortable, are a natural part of the business cycle. Forecasts are not always correct (see Steve’s recent article on market forecasts: Deconstructing the Crystal Ball), and even when they are, markets do not always behave in expected ways. While the past is no guarantee of the future, the market declines and subsequent sharp recoveries in 2020 and 2022 are recent examples of situations where markets can quickly change their tune.
This type of market movement is why we have built our investment and income processes the way we have.
The bottom line?
While tariffs have increased uncertainty and the possibility of a recession is back on investors’ minds, history shows that staying invested through challenging periods pays off in the long run. As your financial advisors, we will implement our investment process on your behalf to navigate through the choppy waters and ensure your portfolio stays positioned to meet your long-term investing goals and future aspirations. As always, please do not hesitate to reach out if you’d like to chat through this or anything else. Have a wonderful March!
1Standard & Poor’s and Nasdaq have declined 9.31% and 13.57%, respectively, as of March 11, 2025
2S&P 500 price return from September 20, 2022 to March 7, 2025
3Nasdaq Composite price return from December 22, 2022 to March 7, 2025
Disclosures:
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Higgins & Schmidt Wealth Strategies, a registered investment advisor and separate entity from LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification and asset allocation does not ensure a profit or protect against a loss. Stock investing involves risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
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