April 2025 Quarterly Newsletter

“Quotations fluctuate constantly, reacting often illogically to all sorts of temporary and even trivial influences” -Benjamin Graham

Investors have experienced heightened volatility at the start of 2025, reminiscent of the fluctuations seen in 2020 and 2022 as a result of significant political changes in the United States. Globalization is a term that has often been met with skepticism by many Americans, though it has benefited certain individuals and businesses in the country. Markets remain uncertain about whether the Trump administration aims to dismantle globalization entirely, establish a new trade coalition to counter China, or promote greater global free trade. These ambiguous priorities are creating significant uncertainty for investors and the global economy. So, where are we now as investors, what will bring the uncertainty to an end, and what is our plan of action as investors?

In April of 2025, Donald Trump announced reciprocal tariffs on most US trade partners outside of the largest individual US trade partners, Mexico and Canada. Subsequently, Donald Trump announced a 90-day pause on tariffs for nearly all countries except China, which retaliated with tariffs on U.S. goods. This development has led to increased stock market volatility and a near halt in trade between China and the U.S. for most goods, excluding electronics, as of this writing. The Trump administration has also expressed its dissatisfaction with the Federal Reserve’s perceived inaction in taking measures it considers necessary to support the economy. The Federal Reserve has signaled its intention to wait and observe economic developments before taking action, a marked departure from its approach in recent years. These conditions have led to US share prices declining as well as rising interest rates, thus causing bonds to decline slightly as well.

“A wise man adapts himself to circumstances, as water shapes itself to the vessel that contains it” -Chinese Proverb. U.S. companies have historically demonstrated remarkable resilience, and once this period of uncertainty subsides, they are likely to adapt to the new circumstances. In 2022, Germany received almost 65% of their natural gas from Russia, mainly for electricity. Now, they receive 0%. During the war on terror, the US became dependent upon the Middle East for its oil and energy needs, and that helped lead to the 2008 financial crisis via 150-dollar oil. This dependence led US shale oil producers to create a new technology that has seen US oil production rise from 4.2 million barrels a day in September of 2005 to 13.451 million barrels a day in December of 2024. When US corporate profits per share in the S&P 500 declined from roughly $85 a share in 2007 to $7 a share in 2008, corporations heavily reduced costs, causing their earnings to rise to $77 a share in 2010. For reference, US corporations in the S&P 500 are expected to make above $210 a share in 2025. Investors are looking for indications that a few significant trade deals are in progress. Once that happens, much of the uncertainty will start to be removed, and corporations will start to act. Donald Trump could potentially nominate his future Federal

Reserve Chairman for May 2026, as suggested by his Treasury Secretary. This would cause the markets to start looking at the new Federal Reserve instead of the current Federal Reserve Chairman who, like Trump, talks way, way too much.

Market corrections are a common occurrence for investors, as uncertainty is a constant in life, even when most of our daily plans unfold as expected. We feel that smaller US companies hold the best valuations for longer-term investors and that interest rates will eventually go down closer to historical averages. If this volatility rises to bear market status, then we will move money around to the investments with the best valuation areas in the markets. Currently, that would be smaller US companies and potentially larger US companies that we sold off a little of at the beginning of 2025. We are also hoping to move out of our longer-term bond positions if interest rates start returning to historically average levels that we were close to in October of 2024. Investors often hesitate to buy during market dips. If you have excess cash, we would be happy to help you develop an investment plan. We would encourage investors to see this as an opportunity. As always, if you have any questions or concerns, please reach out to our team at 931.728.2130 or email me at brent@mccaywealth.com.

Best Regards,

Brent A. McCay

CEO, McCay Wealth Advisory LLC