As we mentioned last time, we are entering a new period of history. Some call it the “Golden Era,” while others are not so optimistic and say we are headed for recession. The DHT Investment Committee looks at all opinions to ensure we are actively managing both risk and reward over the long run. The phrase “long run” may sound overused or hard to quantify. However, when we look at market cycles and listen to people who want to “time the market,” there is often an assumption that missing only a day or two of the market is okay, provided they miss the bad days. Sadly, no matter the president, the economic policy, or how much turbulence we face, timing in the short run has a major impact on your long run returns. How important is staying invested and remaining strategic, you might ask? Well, the chart below boils it down to the effects of missing the 10 best days per year. Since 2015, missing the 10 best days of the year meant the difference between being positive 12% or down -10%. If you are thinking to yourself that 2015 isn’t that long ago, we can look back as far as 1928 (just 11 years prior to DHT Financial Group’s founding in 1939) and having missed the 10 best days per year in this time frame represents the difference between +8% or minus -13%.1 |
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Let’s run a scenario where we time the market. Let’s “get out for now” and get “back in” when the air is calmer. Now, this does not mean that we just put all our money in one egg basket – even though eggs are worth a lot these days (more than some stocks). We at DHT construct our portfolios and your investment plans to match your needs and risk tolerance, and sadly, missing those sunny days amidst the storms cannot always be made up. We are actively working towards maintaining not just long-term performance, but short, mid, and long-term income. Without assets, we do not have income – and without income, we cannot afford eggs in retirement, no matter their price. Our Investment Committee is actively engaged with the day-to-day changes in the market, and we are focused on the following economic topics:
The market is grappling with a lot of major economic impacts and a complete policy shift from the prior administration. Politics aside, the speed of change in the past month cannot be ignored, and sadly, the negative headlines overshadow the positive data we are seeing. Because long-term tax policy is key to how we grow as a country over the next decade, we remain focused on the tax planning side of policy instead of the short-term impacts of tariffs (which dominate the headlines). The original Trump Tax Cuts from 2017 are set to expire this year, and if those tax cuts expire, we will all see an increase in our tax bills. The House passed an initial phase of both tax cuts and spending cuts for 10 more years. The hope is that the Senate and the President can make them permanent.2 Moderating inflation is something we all wish could happen faster, but like all good things, it will take time. And, one month of economic policy will not change all pre-existing conditions overnight. However, we are seeing inflation begin to moderate and we are even hearing the FED talk about inflation below 2% as a safe target. Just look at gasoline and used cars, and the key being lower energy costs. Over 30% of inflation can be tracked back to energy costs, and the price of oil has been declining. Inflation overall eased more than expected in February, falling to 2.8%.3 Couple this with more discretionary income and lower government spending, and you have a recipe for growth. |
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The FED has fallen from the news cycle, but they are not gone. And we cannot discount the FED PUT when we talk about inflation and interest rates. The FED PUT is the action of cutting rates to stimulate the economy and drive down interest rates, which can help force the nearly 7 trillion in cash out of savings and into the market. Some argue that cutting rates has no impact on the market and will take over a year to kick-in, and while that is true in the long run, the short run excitement of lower rates means lower mortgages, cheaper cash, and usually more spending by consumers / investors. So, to look at the market and say recession is the only outcome discounts the actions that have yet to be implemented. The FED has room to cut, and if we add these cuts to tax cuts, we will position ourselves for growth. This presidential administration wants economic growth. While opinions are split on methods and tactics, we cannot forget the first Trump Term. The short run in 2017 was not without bumps – see chart below.4 The lines between 2017 and 2025 have only just begun to diverge and for how long, no one knows. But we cannot forget that 2017 ended as one of the best years in the stock market. And it contained many of the 10 days you should not have missed. |
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No matter your favorite president or party, we can look back to Eisenhower and take the average for any president in the first 50 days and see almost a flat to negative expectation. Why? Because with every change of administration, you are seeing policy impacts that take time to filter through the economy.5 The idea that the market is now “broken,” or that Trump is “killing” the economy doesn’t hold historical basis and has not yet been given the test of time. |
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And, by reading this far, you have now taken a deeper dive into the market than most headlines. Staying disciplined is not easy and not always fun. Markets are hard to predict and that is why we remain strategic. We remain focused on U.S. equity and growth. We remain committed to our bond positions, and with recent volatility, we have seen extremely stable returns in our conservative allocations. Bonds are finally acting like a true hedge against equity risk. The committee remains focused on long-term objectives, and we feel confident in our DHT Income Planning. We harvested income (as was necessary) prior to the volatility, and we continue to harvest income in advance to avoid market shocks like the one we are in. And we remain focused on your long-term plan. We are ready for volatility, and always happy to take a phone call or have a meeting to ensure your plan remains up to date. Together, we can ensure we stay disciplined and ready to enjoy the long-term benefits of staying invested. John C. Donohue, III CFP ® Gregory B. Hart Michael J. Thomson Sr. MBA, CLU, ChFC, RHU, REBC Brooks D. Shertzer Sr. Office: 410-803-0160 Fax: 410-803-0167 Click Here to visit our New Website: www.dhtfg.com 1 Tom Lee CFA – FundStrat 2 Both Sides Spin Who Would Benefit from Extending Trump Tax Cuts - FactCheck.org 3 CPI inflation report February 2025: 4 Chart Shows How Stock Market Is Faring Compared to Trump's First Term - Newsweek |
Q1 2025: Is it Trump, Tariffs, Turbulence, or Timing?
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April 01, 2025