Tactical Allocation Takeaways

Increased downside risk. U.S. trade and tariff policies have significantly altered the path of the global economy since the start of the year, with sentiment among both consumers and businesses shifting in response. As a result, we believe the base case scenario for 2025 is more modest and the risk of a downside scenario has increased. At a minimum, we can see valuations for U.S. large cap equities facing pressure as U.S. “exceptionalism” is called into question, uncertainty over tariff policy leads to caution, and potential for higher inflation/interest rates all weigh on price-to-earnings multiples.

Tactical equity adjustments. Policy uncertainty leads us to have a bi-modal view of potential developments from here. While we may put a lower probability on full-blown recession than some investment strategy teams, we are adjusting to the new reality of increased risk to the downside for equity assets. In response, we are reducing the tactical exposures in our Growth allocation to match the approximate reduction caused by recent performance. To be clear, we are not recommending outright sales of equities — we’re saying that prices are not attractive enough to rebalance into equities given current policy uncertainty.

Tactical fixed income adjustments. In recognition of the greater uncertainty in markets today and the back-up in interest rates in investment-grade bonds, we are recommending a modest shift from Credit Risk Alternatives, which may have greater sensitivity to equity markets, to Short-Duration/Cash for greater liquidity and stability.

We all expect ups and downs in asset values when investing over the long term, and the latest fluctuations resulting from tariff announcements are following this course. However, while no one wants to see their assets decline in value, temporary downturns can create wealth planning opportunities. In this note, Pathstone’s Wealth Planning Group briefly outlines some ideas that may provide a silver lining to the current market disruptions, depending on your goals and circumstances. We also highlight the importance of engaging professional guidance given potential tax considerations.

Many of the families we work with consider acquiring foreign assets at some point in their lives. Circumstances and motivations may vary — a vacation home, a foreign investment opportunity, the cross-border expansion of an operating business, or a sense of security from jurisdictional diversification. However, cross-border wealth ownership creates complexity in the form of exposure both to the laws of a foreign country and to the U.S. cross-border reporting and tax regime.

In Pathstone’s experience helping clients navigate these complex issues, we have found that proactive planning is essential in cross-border matters – “an ounce of prevention is worth a pound of cure” given the magnitude of potential consequences. In this note, we outline some of the key issues to consider before deploying capital in a foreign jurisdiction, whether acquiring assets, forming entities, making gifts, or establishing residency or citizenship abroad. We also highlight the importance of engaging expert tax and legal guidance well before any business or financial engagement in a foreign country.