Weekly Comment

Key insights to stay focused and invest strategically in a changing environment.

Market volatility in perspective: 5 key ideas

The recent 90-day tariff pause has not eliminated uncertainty in the markets. While ups and downs continue, history reminds us that volatility is often temporary and that markets have a remarkable capacity to recover. Here are five key ideas to help maintain perspective and stay focused on your long-term goals:

1. A long-term view changes everything. Stepping back from day-to-day noise allows for better decision-making. Just like in 2018, markets can bounce back strongly—as they did in 2019.
2. Recoveries often follow declines. After a drop of more than 15%, markets have risen an average of 52% in the following 12 months. Keep the inversion is often wiser than reacting.
3. Bear markets are shorter than they seem. On average, they last 12 months compared to 67 months of bull markets. Trying to anticipate them may mean missing out on recovery opportunities.
4. Fixed income brings stability. During equity market corrections, high-quality bonds have shown their defensive role.
5. Staying invested is the best strategy. Discipline has consistently paid off. A portfolio invested in the S&P 500 over the last decade would have tripled in value despite the COVID pandemic and interest rate hikes.

Market implications: History doesn’t repeat itself. A diversified portfolio and a long-term approach remain the best tools for navigating uncertainty.

Market returns have historically been strong following significant downturns.

Source: CapitalGroup

Inflation slowed in March and is moving closer to the Federal Reserve’s target. 

Key highlights from the report: 

The Consumer Price Index (CPI-U) fell 0.1% in March, marking a positive shift compared to the 0.2% increase in February. This decline reinforces the trend toward more controlled inflation amid a still-challenging monetary policy environment. 

• Annual inflation: 2.4%, down from 2.8% in February and better than the estimated 2.6%. 

• Energy: -2.4% monthly, driven by a 6.3% drop in gasoline prices. 

• Food: +0.4%, with increases both at home and away from home. 

• Core inflation: +0.1% monthly and +2.8% annually, the smallest increase since March 2021. 

• Shelter: +0.2% monthly, +4% annually, the lowest rise since 2021. 

• Other categories: Declines in airfare, used cars, insurance, and recreation. 

The report suggests a gradual yet steady slowdown, bringing inflation closer to the 2% target. However, the Fed remains cautious due to persistent pressures in certain sectors and uncertainty surrounding trade policies. 

Market implications: 
The consensus now expects between three and four federal funds rate cuts (currently at 4.25%-4.50%) throughout the year. No changes are anticipated for the upcoming May 7 meeting. 

Year-over-year percentage change in headline and core inflation 

Source: U.S. Bureau of Labor Statistics 

S&P 500 earnings rise amid uncertainty.

Key points from Q1 2025 earnings season 

By the end of Q1 2025, analysts have adjusted their earnings expectations. Although the estimated growth has dropped to 7.3% year-over-year from 11.7% at the end of December, the S&P 500 is still on track for its seventh consecutive quarter of expansion. Additionally, revenue growth is expected to reach 4.2%, with net margins at 12.1%. 

The technology, healthcare, and utilities sectors lead earnings growth, while energy and materials decline. Despite current economic uncertainty, corporate performance continues to show positive signs, which could translate into an 11.5% earnings growth for the full year. 

Market implications: 
With the first quarter closing amid volatility due to the potential effects of tariff implementation, investors will turn their attention to the upcoming earnings season. 

S&P 500 year-over-year earnings growth: Q1 2025 

Source: FactSet 

A straightforward look at how market corrections happen, what causes them, and how to stay on track when they do. 

Making Sense of Market Corrections 

A market correction is a drop of about 10% to 20% from a recent high—and they’re more common than many realize. Historically, the S&P 500 experiences a correction every 18 to 24 months, and in most cases, the market bounces back within four to six months. 

What Do Corrections Look Like? 

• Mild (10–12%) – Usually triggered by shifts in stock valuations. 
• Standard (12–17%) – Often tied to interest rate changes or macroeconomic concerns.
• Deep (17–20%) – Can be caused by financial system stress or major global events. 

What Typically Causes Them? 

• Fed rate hikes 
• Rising inflation 
• Global tensions or conflicts 
• Lower-than-expected corporate earnings 
• Market running “too hot” (i.e., overvalued) 

A Few Recent Examples: 

• 2018 (-19.8%) – Trade war headlines 
• 2020 (-33.9%) – COVID market shock 
• 2022 (-25.4%) – Inflation spike and Fed rate hikes 

How to navigate them: 
During these periods, the most important thing is to stick with your investment strategy, stay diversified, and keep focused on your long-term goals. It’s easy to get caught up in dramatic headlines, but making impulsive moves often does more harm than good. 

At the end of the day, getting through a correction is about having a plan, staying disciplined, and remembering that volatility is a normal part of investing. 

Market downturns have occurred every year.

Source: Capital Group

The Fed keeps rates at 4.25%-4.5% but revises growth and inflation projections.

March Monetary Policy Announcement 

 The Federal Reserve decided to keep its benchmark rate at 4.25%-4.5%, in line with expectations. However, its message was more cautious, as it lowered its growth forecast and raised its inflation estimate for 2025. 

Key Points: 

• Expectations for two rate cuts this year remain, with rates closing at 3.9%. 
• The pace of quantitative tightening is slowing, adjusting the reduction of bonds on the balance sheet. 
• The 2025 growth projection drops to 1.7% (from 2.1%). 
• Core inflation is estimated at 2.8%, above the previous 2.5% forecast. 
• Trade tensions are rising due to potential tariffs amid an economic slowdown. 

Markets will closely watch the Fed’s next moves and the evolution of trade tensions. 

Market Implications: 

 Markets will remain attentive to the Fed’s upcoming decisions and the development of trade tensions. 

Fed Indicator Update (March vs. December) 

Source: Federal Reserve

Buffett highlights Berkshire’s performance, liquidity strategy, and growth in Japan.

Warren Buffett’s highly anticipated annual letter is here, and as always, there’s plenty to analyze. In 2024, Berkshire Hathaway reported an operating profit of US$47 billion, a 27% increase despite more than half of its businesses experiencing a decline in earnings. 

• Liquidity Strategy: Berkshire ended the year with US$334 billion in cash. Despite speculation, Buffett reaffirmed that his focus remains on stock investments. 
  
• Beyond the U.S.: Berkshire continues to expand its presence in Japan, with investments in five major conglomerates. 
  
• Insurance Sector on the Rise: Operating profits in insurance grew 66% year-over-year, solidifying this business as the cornerstone of the firm. 

Buffett expressed optimism about the future of American businesses. While he didn’t directly address his retirement, he acknowledged that Greg Abel’s leadership transition is approaching. 

Top 10 holdings in Berkshire Hathaway’s investment portfolio 

*Figures as of December 31, 2024 – Cash position: US$334 billion.  

Source: CNBC 

Tariffs are on investors’ radar due to their impact on the economy and markets.

Now more than ever, tariffs are a key topic in the global economy. Not only do they affect inflation and corporate profitability, but they have also become tools for political negotiation.  

Since his campaign and now in his administration, Donald Trump has pushed for tariffs on imported goods from China, Canada, and Mexico, aiming to protect U.S. industry and reduce the trade deficit. However, these measures can have side effects such as trade tensions and rising consumer prices. 

🔹 What are tariffs? Tariffs are taxes imposed by governments on imported goods to make them more expensive and encourage the purchase of domestic products. They can also be used to generate revenue or as a political pressure strategy. 

🔹 How do they work? When a country imposes a tariff, the importing company pays the tax, either absorbing the cost or passing it on to the end consumer through higher prices. 

🔹 Impact on businesses: As production costs rise due to more expensive materials, companies often increase their product prices, affecting both businesses and consumers. 

In a nutshell, tariffs can benefit certain local industries but also make products more expensive and impact the global economy. Staying informed is key to making strategic financial decisions in response to these changes. 

Trade barriers: U.S. tariffs have risen significantly in recent years. 

Source: Capital Group

The performance during the season has been encouraging, with corporate profits exceeding expectations.

With more than 75% of S&P 500 companies having reported their results, earnings grew 11% year-over-year, surpassing expectations and marking the fastest pace in three years.

Key data:

• 76% of companies beat estimates, with an aggregate growth of 7%.

• Excluding tech megacaps, earnings grew 20%, the fastest pace since 2022.

• Megacaps (MSFT, AAPL, GOOGL, META, AMZN) 27% annual growth, with profit margins close to 25%. NVIDIA will report on February 26, with expected growth of 72%.

• The P/E multiple premium of megacaps fell to 30%, below its five-year average (50%).

• AI dominated earnings calls, with tech companies projecting a 49% increase in CAPEX for 2025.

The corporate sector remains resilient, with AI as a key driver. However, the 14% earnings growth forecast for 2025 may face challenges amid a restrictive monetary environment and new trade tariffs.

Tech Megacap Earnings Growth Minus S&P 500 Earnings Growth Excluding Tech Megacaps

Source: JP Morgan

Core inflation rose to 3.3% year-over-year, with the shelter index as the largest contributor. 

The Consumer Price Index (CPI) increased 0.5% month-over-month in January, exceeding the 0.3% forecast. On an annual basis, headline inflation reached 3.0%, also above the 2.9% estimate. 

Key factors driving the increase: 

• Shelter: +0.4% in January, accounting for nearly 30% of the monthly increase. The annual rise was 4.4%. 

• Energy: +1.1% month-over-month, with gasoline rising +1.8%. 

• Food: +0.4% month-over-month; egg prices surged 15.2% due to avian flu. 

Core inflation (excluding food and energy) increased 0.4% month-over-month and 3.3% year-over-year, exceeding estimates. Other notable increases were seen in auto insurance, recreation, and healthcare. 

What’s Next? 

Although inflation has cooled from its 2022 peaks, housing costs continue to exert pressure. Jerome Powell reiterated that the Fed is in no rush to cut rates, and markets now anticipate that the first-rate cut could be delayed until the second half of the year. 

Annual change (%) of the general and underlying consumer price index (CPI) (Core CPI) 

Source: US Bureau of Labor Statistics

DeepSeek is revolutionizing AI with a more efficient and accessible model, generating significant interest. 

The recent announcement of DeepSeek has captured the attention of the technology and financial industries, signaling a potential disruption in the artificial intelligence and semiconductor sectors. This efficiency has fueled its rapid adoption, accelerating downloads of its application. Below, we highlight some key points. 

Key Highlights: 

• Unprecedented efficiency: DeepSeek trains models with only $5 million and 2,000 GPUs, compared to the $100 million and 100,000 GPUs required by current industry leaders. 

• Market impact: Following the announcement, NVIDIA and other leading players in the industry saw significant stock losses, reflecting a potential shift in market dynamics. 

• Challenges ahead: From national security concerns to regulatory risks and cybersecurity threats, DeepSeek’s path is not without obstacles. 

While it is still early to assess its long-term impact, the evolution of DeepSeek raises key questions about the future of hardware and semiconductors in the AI industry.  

We remain attentive to exploring the implications of this breakthrough together. 

DeepSeek vs. ChatGPT comparison 

Source: Datacamp.com