Leeward Investment Team
This week, all three major averages slid more than 3% as President Trump's tariffs and the Department of Government Efficiency (DOGE) policies began to weigh on investor sentiment. The S&P 500 Index is now down 2.6% in 2025, and the Nasdaq Composite has entered correction territory, down over 10% from its recent February high. Investors fear that tariffs and job cuts will increase prices while slowing growth – a challenging environment economists call "Stagflation."
We're already seeing early signs of concern. Consumer surveys conducted at the University of Michigan show people expect higher inflation next year (4.3%), and that overall consumer confidence has dropped. Meanwhile, announced layoffs have soared to over 172,000 amid federal government job cuts and trade war worries. Initial estimates suggest that each of these government layoffs could impact three to five private sector jobs as well, meaning that it will take time to assess the full impact of these job cuts on the employment situation.
In the markets, the technology sector which led gains in 2023-2024 has weakened since January. Most major tech companies are down this year despite solid earnings, as investors take profits following two strong years. These pullbacks feel uncomfortable, and they also provide a healthy reset.
Recent market movements reflect uncertainty about the new administration's policies. In the short term, headlines about tariffs, government cuts, and economic reports will drive market swings. We expect economic data to worsen over the next few months as government layoffs work through the system, creating more market turbulence before things improve. Our analysis suggests this period of uncertainty will last through most of the spring, with market sentiment beginning to recover as policies become more established.
However, the fundamentals that drove markets for the past two years remain strong. AI innovation continues to advance, infrastructure spending remains in place, and companies still have strong cash positions. The U.S. economy is still projected to grow this year, even if at a slower pace.
In client portfolios, we're making targeted adjustments:
Most importantly, we're not panicking. After two years of exceptional growth, the market's current position (S&P 500 down 2.5%, Nasdaq down 6.0%, Dow Jones flat) represents a healthy pause rather than a freefall. We're experiencing a temporary growth-scare driven by policy uncertainty, not the start of a major downturn. It’s important to remember that the only people that get hurt on the roller coaster are those that get off in the middle.
While uncertainty won't disappear overnight, we expect confidence to gradually return as policies become clearer. We'll continue monitoring developments closely and make adjustments as needed to help you reach your financial goals.
We appreciate your trust and partnership. Please contact us if you'd like to discuss your investments further.
Sincerely,
Jim and Mike
jim@leewardfp.com
mike@leewardfp.com
