By Akemi Kondo Dalvi, CPA/PFS™, CFP®
“Breaking News” has been the recurring theme of the Trump presidency. Hardly a day goes by when urgent information about a significant event isn’t unfolding. Often this new data serves as a catalyst for stock market movement.
Equity markets like to process corporate earnings announcements, geopolitical developments, and economic data as quickly as possible and then project how those facts will affect future value in the stock market. This leads to price adjustment, and when new information comes rapidly, that can create surges into or out of the stock market.
With headline developments unfolding daily, the stock market feels more turbulent than ever, and that can be unnerving.
March was a recent test for investors. The U.S. entered a war with Iran with no definitive end date, upending President Trump’s initial predictions for a quick resolution. As such, the S&P 500 dropped approximately 10%, and sentiment turned sharply negative as the conflict extended.
However, similar to recent market downturns, recovery happened in the blink of an eye. By April, markets fully recovered from the March decline, almost as if the dip had not happened. Investors regained optimism, and the market climbed to new market highs.
If you had turned off the news for a month, at first glance, you might not have known there was a big hubbub. However, in reality, most of us stayed glued to the TV, fearing the next world war.
The experience was unnerving, but also a learning opportunity. For investors who had drifted into aggressiveness from the gains of 2023-2025, now was the time to rebalance portfolios and ensure that the allocation of growth-oriented equities to protective bonds was appropriate. The safety portion of our equity portfolios is never exciting, but when the stock market dips, fixed income tends to be more buoyant, which can protect us from steep, rapid declines.
The component of downside protection is very important in a volatile market because it often allows investors to stay in the market during periods of insecurity. Historically, the strongest market recovery days happen near the worst declining days.
In other words, if you were a market timer and cashed out when the market was going down in late March, you might have missed the sudden stock market recovery waiting for the all-clear signal. FYI, it’s still not “all clear.”
A diversified investment strategy can help navigate uncertainty, with as little pain as possible. Although diversification is not glamorous as active market trading, diversification has historically proven to be one of the best investment strategies for long-term investors.
Harry Markowitz, often referred to as the “Father of Modern Diversification,” showed mathematically that by combining assets that are inversely correlated, investors can lower portfolio volatility, and still achieve long-term expected returns. Utilizing Modern Portfolio Theory, investors can strive for the efficient frontier, or the most optimal mix of risk and reward in investing. Markowitz published his findings on Modern Portfolio Theory in 1952, and won a Nobel Prize for Economics in 1990.
As investors, when we design good investment portfolios, we should build them with the recollection that the stock market corrects, or declines approximately 10% every one to two years, on average. More severe market drops, or bear market corrections of 20% or more, tend to occur every four to six years.
However, these corrections don’t happen on a schedule, so it is important that we revisit our investment portfolios for appropriateness so we can stay the course to recovery.
If your investment portfolio didn’t fare so well through this recent blip, perhaps now is a good time to reexamine your investment strategy before the next turbulence. Decisions often made in calm markets, with a clear mind, fare better than emotional or fear-based decisions.
We’re probably not out of the woods yet. Looking ahead through the end of 2026, we still have an impending war that will impact the price of gas at the pumps. Fed Chairman Jerome Powell will transition board leadership to Kevin Warsh, who will have a tricky road ahead as he balances interest cuts and sticky inflation.
Midterm elections will be more important than ever as Democrats and Republicans jockey for control of the House. A Democratic Party takeover of the House could slow down policy change and affect policy around debt spending and public benefits.
Then there are the on-again, off-again tariffs that the Supreme Court invalidated under the International Emergency Economic Powers Act (IEEPA). Trump has vowed to find another way to enact the “Liberation Day” tariffs, and he will likely circle back to this when he is less distracted by the U.S.-Iran war.
The long story short is that market turbulence is probably here to stay through at least the end of the year. However, the framework with which we use to build resilient investment portfolios can withstand these volatile moments and provide investors with the best plan possible. We cannot stop market movements, but we can ensure we are best prepared to live through it with a clear investment strategy and as much peace of mind possible.
If you could benefit from a consultation with a financial professional, please reach out to your Certified Financial Planner or CPA Personal Financial Specialist (PFS). Whether you are exploring investment strategies, cash flow management, charitable gifting, retirement planning, or new tax policy changes, we’re here to help you make sense of it all.
The opinions expressed above are solely those of Kondo Wealth Advisors, Inc. (626-449-7783, info@kondowealthadvisors.com), a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.