LPWMG

As we have previously communicated, we have remained cautiously bullish, anticipating that 2025 would be a year of significant change. While some of these changes may be unsettling, we believe they will ultimately have a positive long-term impact on the economy. Key factors influencing the markets include substantial cuts in government spending, the impact of tariffs, and a softening consumer sector. However, we also foresee beneficial developments, such as lower taxes, deregulation, easing inflation, lower interest rates, and significant domestic investment.

Market Adjustments and Consumer Behavior
The stock market has been recalibrating after an overinflated growth outlook for the technology sector. We expected a period of transition as government spending declined sharply and consumer spending weakened. Recent earnings reports from Walmart and Target confirm that consumers are pulling back, which may lead to a short-term economic slowdown. While this could develop into a mild recession, lower interest rates—especially for mortgages—could provide a strong tailwind for early-cycle stocks.

Tariffs: Impact and Outlook
Tariffs remain a focal point in economic discussions. While they pose significant challenges for our trading partners, particularly Canada and Mexico (with 19% and 25% of their economies tied to U.S. exports, respectively), their direct impact on the U.S. economy is more limited. U.S. exports to these nations account for only about 1% of our GDP each. The anticipated pre-buying of goods ahead of the tariffs may temporarily weigh on first-quarter GDP due to a sharp rise in imports, but we do not view tariffs as a long-term economic disruptor.

Investment & Growth Potential
The White House has reported nearly $2 trillion in new investments toward U.S. manufacturing and productive assets, a major catalyst for future growth. We estimate this could add as much as 2% per year to GDP over time, strengthening economic fundamentals.

Our Positioning
In recent weeks, we have selectively taken profits, bringing our cash levels to the highest they’ve been in over a decade. This positions us to act as new opportunities arise. Meanwhile, the attractive yields in our portfolios provide downside protection should volatility persist. As the market navigates this transition, we remain cautiously bullish and strategically positioned for the next phase of growth.

Our Best Always,

Bob

Robert O'Braitis
CEO
Chief Investment Strategist