Early 2025 highlights:

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Positive returns concentrated outside the US

• Foreign stocks (EAFE) +8.1% in USD, S&P 500 -4.5%
• US technology, consumer stocks in reversal following strong election-period gains

Bonds gain on falling interest rates

• Reduced expectations for growth and inflation
• US 10-year Treasury Note yield: 4.0% versus 4.8% on January 1

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What to do when stock markets fall

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We are attentive, as our readers are, to the shifting political and economic landscape, and we listen to a broad range of viewpoints. We will refrain from making big-picture forecasts, which we find generally unhelpful to managing investment portfolios. Importantly, in periods of market shock, we broadly seek to take advantage of asset price markdowns and upgrade the expected return profile of portfolios.

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For portfolios invested to achieve long-term capital appreciation, and whose owners are neither particularly risk-averse nor subject to specific constraints, a significant drop in equity prices will generally lead us to add to holdings. At present, consensus views tend to assume highly negative outcomes due to heightened uncertainty. We consider, however, that uncertainty is a constant factor in investing. In richly-priced markets, when visibility appears high, we generally limit our scope to a relatively small set of investment situations. By contrast, steep, across-the-board declines in asset values result in a broad array of appealing investment situations, which we tend to view opportunistically. We will likely accelerate portfolio activity in such an environment in order to capture increased prospective returns.

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Today, as we evaluate many potential portfolio changes, we do not seek to change our investment strategies. The key tenets of our US, non-US and high-grade bond strategies are well-defined and well-tested in previous crises. Importantly, our approach to difficult market environments entails careful management of portfolio liquidity, attention to after-tax returns – and an unsentimental evaluation of holdings amid an unusually broad array of competing alternatives.  

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DeepSeek, the DOGE and Tariffs

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While the rough U.S. tariff measures announced on April 2 triggered sharp declines in equity markets, tariffs are not the sole source of U.S. equity market weakness. At least two other challenges to growth appear, in the form of the DeepSeek proof-of-concept and the DOGE (Department of Government Efficiency):

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Slowing US tech spending

• AI and related datacenter infrastructure spending emerged as a major driver of U.S. economic growth and perceived competitive advantage.
• Several of the largest US companies and many of the most highly-valued are at the center of this major capacity expansion.
• The release in January by China-based DeepSeek of a highly-functional, low-cost large language model (“LLM”) challenged the notion that massive capital spending would be required to support AI applications.
• It also challenged the notion that China was too severely handicapped by export restrictions to compete in cutting-edge applications.

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Slashed or frozen public-sector budgets

• The creation of the DOGE, led by Elon Musk, to oversee major reductions in public expenditures is a key plank in the Trump administration’s de-regulatory agenda.
• Given the large share of public-sector spending as a proportion of GDP (as much as 25%), as well as the growth in government spending in recent years, spending cuts weigh on large sections of the U.S. economy.
• In recent weeks, several consulting groups, contractors and other firms supplying and serving government have announced layoffs and warned on their profit outlooks.

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Lower oil prices and lower interest rates should help offset the negative impact of these factors. The stated rationale for high tariffs is to bolster domestic manufacturing and employment. Re-shoring of supply-chains to North America should acquire more urgency given elevated trade barriers. Increased investment should support economic growth over time and may even emerge as a prime investment theme. In the near-term, however, and in the absence of measures to alleviate the burden, tariffs represent a major new tax for US businesses and consumers. Businesses directly affected by the new tariffs will resort to price increases, layoffs, investment freezes and other measures needed to stay viable. Their difficulties will affect their partners and suppliers.  

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The impact of tariffs could become more severe, depending on the scope of retaliatory measures imposed by foreign governments on US firms. Smaller countries face the risk of significant economic deflation if American buyers pull-back in a pronounced way. Ideally, trade barriers would be negotiated away; but we have little visibility on the outcome of trade negotiations.  

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Investment Decisions

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Our focus today remains squarely on using the current market correction to upgrade expected returns – ideally, without a commensurate increase in portfolio risk. We expect that in the coming weeks and months many companies across sectors will reduce forecast revenues and profits (or refuse to provide forecasts). Investors will want to look through near-term outlooks in order to gain a better vantage point on businesses’ long-term growth prospects. Indeed, many leading businesses with strong balance sheets and competitive positions no longer trade at significant premiums. In certain cases, businesses whose stock prices are currently under pressure may benefit from dislocations created by the tariff walls.

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As we behave opportunistically, we must also heed the risk of unpredictable political actions (for example, retaliatory tariffs) and company-specific trade-related risks which may not be apparent today. Many deeply-embedded trade-related risks will appear in a new, less favorable light. Still, not all political actions need be negative for investors. Strains related to trade wars will push foreign countries, including many Asian and European countries, to stimulate their domestic economies and to trade more with one another (perhaps with reduced trade barriers). For precedent, note that Germany’s recent major defense and infrastructure bill took shape in reaction to hostile Trump administration rhetoric. The withdrawal of the US as the guardian of global trade and security creates a new sense of urgency and opportunity abroad.

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The recent strong performance of foreign equities contributed to our strategy returns during the first part of the year. In time, the brief period of non-US equity outperformance may seem an anomaly, given the US market’s historically superior growth characteristics, its dominant tech sector, and America’s longstanding market-friendly policy regime. We expect the US tech sector to remain robust – and we expect policy to ultimately become supportive of “Wall Street” as well as “Main Street.” Nonetheless, a currently inhospitable US policy approach, a potentially recessionary environment, and downward revisions to expected tech-sector growth could translate into sustained benefits from diversification.

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Many portfolios under our management seek income generation and capital preservation, in addition to long-term appreciation. Our high-grade fixed-income strategy performed well during the first part of 2025 – and strengthened during the recent equity sell-off as investors sought safety and markets priced further interest rate cuts.  We continue to own Treasuries and high-grade corporate bonds in these accounts; yield levels on many preferred and perpetual bonds strike us as particularly attractive. We expect our fixed-income portfolios to generate 5.5-6.0% total returns – and with minimal credit risk. Such returns compare favorably to cash, whose interest rate may be reduced significantly this year should the Federal Reserve try to more actively counter economic weakness.

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We will communicate our perspectives over the coming weeks, as we expect the current political, economic and financial-market situation to remain dynamic. We are grateful for the confidence you have placed in our abilities. We welcome your observations and questions, as always.

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-The Bridgehampton Group

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Ingalls & Snyder, LLC, is an investment advisor registered with the U.S. Securities & Exchange Commission and a FINRA member broker dealer. This material is being provided to you for informational purposes only and is not intended to be a general guide to investing, or as a source of any specific investment recommendation and makes no implied or express recommendation concerning the manner in which any account should be handled. Any investment program involves certain risks, including loss of principal, and no assurance can be given that any specific investment objective will be achieved.