Earlier this month, the announcement of unexpectedly high tariffs triggered market declines and renewed investor questions about the outlook for the U.S. economy. To explore these themes, Pathstone recently hosted a private client event featuring senior leaders and a policy strategist known for his expertise at the intersection of financial markets and government action. While the full conversation remains exclusive to Pathstone clients, we’re sharing below a few key themes from the discussion that can help contextualize the shifting trade landscape and the broader implications for portfolio positioning.

The following summary is a synthesis of the discussion and market observations and is not a direct transcript or attribution of any individual speaker.

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.

Markets continue to navigate heightened uncertainty, especially around tariff policies and their potential impact on both inflation and growth. This has triggered further volatility and a larger pullback in the U.S. equity market. As of March 13, the S&P 500 had experienced a 10% decline from its prior high on February 19, with selling pressure concentrated in growth stocks (a segment of the market we had previously pointed out as being expensive on a valuation basis). In contrast, markets outside the U.S. have had a stronger start to the year, with both developed non-U.S. and emerging market indices climbing year-to-date. At times like this, it’s important to remember that the S&P 500 has averaged annual intra-year drawdowns of 10.5% since 2000. While drawdowns never feel good, it is normal for markets to go through repricing periods when uncertainty around the economic outlook is heightened.

Questions of how and when legacy and donor intent should drive the structure and strategy for philanthropic activity has taken on fresh relevance in recent years. The philanthropic sector is increasingly called upon to fill gaps in social services, advocacy, and community resilience efforts. At the same time, a new generation of philanthropists is questioning whether foundations should exist in perpetuity or spend down their endowments, reflecting a sense of urgency to address issues such as climate change.

In what was a turbulent month, US markets weathered significant economic headwinds with surprising resilience. The S&P 500 experienced a challenging month, with the Magnificent 7 stocks selling off nearly 9% and marking their worst performance since late 2022, yet remarkably the S&P 500 remained only 3% below its all-time high. Corporate earnings demonstrated strength, with the S&P 500 reporting 17.8% year-over-year earnings growth—the highest since Q4 2021—and slightly better-than-expected revenue growth of 5.3%. Economic indicators presented a mixed picture, with January payrolls adding 143,000 jobs while inflation exceeded expectations, prompting Federal Reserve Chair Jay Powell to signal continued cautious monetary policy. Rising negative sentiment, fueled by policy uncertainty and potential tariff impacts, could potentially dampen consumer spending and market confidence in the coming months.

As of mid-February, global markets are experiencing a rotation in leadership, with a more balanced rally across sectors. Developed Non-US equities driven by Europe are leading the way. While the S&P 500 is +4% YTD, leadership is no longer concentrated in just the Mega Cap Tech names, reflecting healthier market breadth.