Investment
Commentary

Q1 Market Update with Steve Cavalieri

Throughout my investment career, I’ve often said during periods of market volatility: “It is never different.” Over the past two months, I’ve heard a common refrain from clients: “But it feels different this time.” After giving it serious thought—I have to agree. This time, it is different.

I’m Steve Cavalieri, Chief Investment Officer at Summit Financial Strategies, and I’m here to break down what’s been driving the markets and why this moment may stand apart from the past.

So, let’s take a look at where the quarter ended and the key factors driving markets.  Domestic equities faced challenges this quarter, with large-caps down four-point-three percent (4.3%), mid-caps down six-point-one percent (6.1%), and small-caps down nine-point-five percent (9.5%). International equities bucked the trend, up six-point-nine percent (6.9%), and fixed income showed strength, up two-point-eight percent (2.8%).

The declines in domestic markets may have felt more severe than those numbers suggest. Large, mid, and small caps were all up four-plus-percent (4+%) at various points mid-quarter, meaning peak-to-trough declines were around ten percent (10%), thirteen percent (13%), and nearly fourteen percent (14%) for the respective asset classes.

The year began with positive economic news – stronger-than-expected jobs data and slowing core inflation. Markets rallied, anticipating that the Trump administration would reduce both taxes and regulations. Markets shook off the Fed’s January comments about inflation remaining elevated, increased chatter regarding tariffs, and concerns that DeepSeek, a Chinese startup, would upend US dominance in artificial intelligence.

Tariff talk really ramped up in February, with terms like ‘reciprocal tariff’ and ‘retaliatory tariff’ making their grand entrance into our vernacular. The fluid strategy of tariff implementation, coupled with aggressive cost-cutting measures and restructurings from Elon Musk and the Department of Government Efficiency, weighed on consumer sentiment and became too much for domestic markets to bear. US markets sold off, while international markets – despite being the target of the tariff policies – continued to advance.

Through the balance of the quarter, the tariff strategy remained dynamic. Today—April 2nd, the day I’m recording this—Trump has declared ‘Liberation Day,’ signaling his intent to reset and redefine global commerce – a bold yet ambiguous move that markets are trying to interpret.

And there we get to the crux of why it is different. The sheer pace and frequency of shifting messages from this administration have been staggering, while details remain scarce. Past presidents have used a ‘shock and awe’ strategy in times of war, and now it seems the same approach is being applied to policy. Rapid, sweeping announcements create waves of uncertainty, leaving the market grasping for clarity and struggling to gauge the true impact.

We often say we know volatility is going to hit; we just don’t know when or where it will come from. In reality, each time is different. September 11th was different. The Great Financial Crisis was different. COVID was different. So when I’ve said ‘it is never different,’ I was referring to how markets ultimately respond—not the cause of volatility itself. Each crisis is different, but the cycle of fear, adjustment, and recovery remains the same. As this Fidelity graphic points out, volatility is the cost of admission for the historically outsized returns of equities relative to fixed income or cash.

Although “this time” might have some new elements, the core tenets of sound investing endure. Market downturns can test your resolve, but remember this: Your Summit portfolio has been intentionally constructed with both historical returns and volatility in mind. As always, your investment policy statement remains your most appropriate guide for investment decisions. Staying committed to the plan is what turns short-term uncertainty into long-term success. Your Summit team stands ready to answer any of your questions. Thanks for joining me today, and I’ll see you on the next one.