Weekly Stock Market Update with EP Wealth Advisors Managing Director, Investments -
Adam Phillips, CFA^®, CAIA, CFP^®

Often quoted in major national media, Adam is a Chartered Financial Analyst (CFA^®), a CERTIFIED FINANCIAL PLANNER™ (CFP^®), and has been included on the Forbes NextGen Best-in-State Wealth Advisors 2019 list. He is a member of the CFA Society of Los Angeles and the CFA Institute. Adam helps establish asset allocation strategy as a member of the EP Wealth Investment Committee, which supports all EP Wealth Advisors and their clients. The Committee’s top-down approach to portfolio construction begins with an outlook on the economy’s likely direction, followed by the implications for different economic sectors and asset classes. This culminates in strategic selection of the individual stocks, bonds, mutual funds or other investments deemed most appropriate for each individual client’s portfolio.

Market Update Topics for Week of April 14, 2025

• Markets in the Clear?

• Sell-off in Treasuries

• Dollar Decline Incites

• Current Portfolio Strategy

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Video Transcription: 

Welcome into the informed investor long-term thinking weekly insights. I'm Rob Black joining me today. Adam Phillips, Managing Director of Investments at EP Wealth. 

Not an ordinary week, and it certainly wasn't boring last week. Let's talk a little bit about it for the year. The Nasdaq is down 13.4%. But it was up 7.5% last week. The S. And P. 500 is down 8.8% for the year. But it was up 5.7% for the week. The Dow Jones industrial average down 5.5% for the year. But it's up 5% last week. S. and P. Mid, cap. 400 down 12.8% for the year, but up 2.8% last week, and the Russell 2,000 down 16.6% for the year up 1.8% last week. Not ordinary, not boring Adam. What do you think about these current market conditions?

Adam Phillips 

I think I need some Dramamine. Rob. Look, last week was good. It was nice to see some bounce back in the markets. I think there's a few interesting takeaways with the information you just shared Number one, that the leadership was really driven at the top. And so, if this were perhaps a more durable rally, or last week's rally that's really started on Wednesday 

was indicative of maybe some some fears about a recession being alleviated. We would have expected to see that Russell. 2,000 small cap stocks, actually, perhaps outperformed large cap 

didn't happen. You just mentioned there. The return for the week was just under 2% versus quite a bit higher for large cap stocks. So I think that is something that's important to note. We were certainly happy to be in positive territory last week. I think the question is is this, are we in the clear? And I don't think that we are. 

This very well could be one of these head fakes that we so often see in these types of periods of volatility. We got this reprieve from Donald Trump last Wednesday, when he kind of eased up on some of these tariff announcements and said, Okay, we're going to take 90 days. We're going to negotiate different things. Talk to our trading partners. For now we're just going to go with these 10% universal tariffs for everyone except for China. And they're at 145% last I checked. 

And so I think what that means is that we got this reprieve. It showed that that so-called trump put of when he's actually going to come to the market's aid and deliver some good news to stop the bleeding. I think we saw that. Okay, that trump put does exist. Maybe it comes in when the market hits that 20% down territory, and that's about where we were. 

But I think what this means is that we're going to be stuck with uncertainty for perhaps longer. It's just delaying this clarity that we're all waiting for, so I do expect volatility to remain with us, and I'll note that historically, in these periods of volatility, you see these rallies, and it doesn't necessarily mean that they're going to be sustainable. 

So I'll just point to the global financial crisis. And in from September of 2,008 to march of 2,009, when the S. And P. 500 actually bottomed. We saw about 8 rallies of let's call it close to 10% or more. We actually saw 2 that were close to 20%. That ended up failing, and we didn't actually bottom out as a stock market until March of 2,009. So I don't want to get too pessimistic here. I don't want to say this is a crisis, but I think it's just important to acknowledge that historically, when you're in these periods of volatility, you're going to see big moves to the upside and to the downside. And that's why, in the last video update that we did. 

I said that this is when you cannot let your emotions get the best of you, and you need to stick to your long-term disciplines. Stick to your long-term strategy, and oftentimes what you find is that the weakest days in the market are followed by the strongest days, and really last Wednesday that the bounce that we saw there. It was an intraday swing of about 11%. So the most since that 2,008, 

3rd biggest day advanced for the S. And P. 500 going back to 1950. 

That's why you need to stay in and really stick to the long term strategy during these periods of uncertainty, because we will get through it as difficult as it is to watch. 

Rob Black 

So I was looking at the news from last week, and there was a lot of talk about the 10-Year Treasury not doing what it typically would do. What does that mean? And what did you see in the Treasury markets last week? 

Adam Phillips 

Yeah, well, look, When we are in these periods of volatility, and you see a little bit of a growth scare. And you see stocks 

really cratering, which is what we saw the last couple of weeks. It really felt like it was tough to find that floor for a while. Typically what you see is, you see, the fixed income or bond portion of your portfolio serve as that ballast. You see, bond prices actually move higher meaning yields go down because treasuries and high-quality fixed-income assets are viewed as safe haven 

investments in in times of market stress. And so normally, what we would have expected to see is that when stocks were falling over the last couple of weeks, we would have expected yields to decline, and for a while. We saw that 

last week we got down to just shy of 4% on the yield, meaning bond prices were moving higher. That was great. But now we are back to about 4.4% on the 10-year treasury. And so that actually implies that bonds have lost some money over the last few days, and I think that's really noteworthy. We could talk about what those drivers are. But maybe just to provide a little bit more context here, going back to the sell off that we saw last August. We saw the 10-year Treasury yield hit about 3.6%, 

and there was a point last week when we actually fell below that August level on the S. And P. 500. So one would have expected that bond yields would have been somewhere around that 3.6 level. The lowest that we got was right around 4%. And now we're north of that. And so that tells you there's a little. There's something different going on here. 

And so let's talk about what those drivers are. I think it can be attributed to a number of things. 1st is inflation, expectations. We've seen that inflation expectations have moved quite a bit higher in response to these tariff announcements, both on a 1 year forward period as well as over the next 5 to 10 years. For those that think that inflation might stick around for longer. 

I think there's also this unwinding of what they call the basis trade, really a popular strategy among hedge funds, so that that's causing some selling of treasuries. Also seeing margin calls so meaning in periods of stress. When investors get margin calls, they are looking. They're probably going to sell treasuries or sell whatever they can. That's the most liquid. In that case it's treasuries. But really, what's getting a lot of a lot of attention the last few days is well, what if this is all foreign investors that are selling their treasuries and really trying to stick it to us for causing this for starting this trade war in the 1st place. And really, specifically, China. China is one of the biggest owners of treasuries, and so they own the number's been coming down. But it's just shy of about 800 billion right now. Now, that doesn't include treasuries that they hold that are actually held in Luxembourg and Belgium. There's another call it 800,000, or, excuse me, 800 billion or so total there. They're not all owned by China, but a large portion are. The fear has always been well, what if? What if China really does try to stick it to us and wants to send our bond yields higher? Would they actually start dumping their treasuries, and the idea has been that no, they probably wouldn't do that, because that would cause yields to surge meaning. Bond prices go down, and they would end up hurting themselves, too, because they own all these treasuries. They still have a lot that they own directly, so probably not going to do that, but I think that there is a portion of that where these foreign investors are looking for other places to park their money. Part of it might be to just in response to this, I guess this trade war that we now find ourselves in. But I think part of it might just be that the fact that foreign bonds are now paying a pretty decent yield and can compete with treasuries. You look at German bond yields, and you can get a pretty decent yield there for a while. Just a few years ago we saw a lot of money in the bond market outside the Us. Was actually trading with a negative yield. That's not the case anymore. And so now there is an alternative. And so I think that just means there could be that much more to compete with treasuries. And so I think all these things are really driving. Bond yields higher right now. 

Rob Black 

Last week we also saw the dollar decline. I'm not. I've been doing this for 29 years, and I don't really see the value of the dollar, and how that works. Give me a little tutorial, please. 

Adam Phillips 

Sure. So yeah, absolutely. And that's 1 thing that we've been keeping an eye on, because for a while there the Treasury yields were rising and meaning bond prices were moving lower, and we were seeing the dollar actually appreciate. And we said, Okay, well, if we were seeing foreigners sell treasuries or less foreign demand for treasuries. At these auctions, we would actually see the dollar go down. And so now we actually are starting to see that. And so we're asking ourselves, okay, what's driving this? Where does it go from? Here is this de-dollarization happening right now? It's something that we hear every so often. 

The one thing 1st thing I'll mention is we're not too concerned with the dollar falling. We want to watch it. But I will say that if we're concerned about inflationary pressures as a result of tariffs. 

A declining dollar certainly doesn't help, because it just makes imports that much more expensive for us. And so that's why I think we should care about where the dollar is going. 

I will also note that the speed with which it's been depreciating relative to other foreign currencies is pretty amazing. I mean, we've since the beginning of January. The dollar has lost about 10%. Now, I'll just say that this is likely just more of a normalization so far than a de-dollarization. I think the fact remains that 

you cannot replace the dollar right now. There really just is no alternative. The dollar is involved in over 80% of global transactions. And so that's just very hard to compete with. Some are investing more in gold and finding gold more useful these days, and there's something to that. But it's not necessarily a medium of exchange. We're not going back to using gold as a medium of exchange. So it's not really a currency if you just follow the formal definitions. 

But so I think this is really more of a normalization. And I. 

I would take it back even longer and say over the last 10 years. The dollar is still up about 25%, and these things go in cycles, and so one could argue that the dollar was overvalued. And these things need to come back in line. That could be what we're seeing right now, and I'll just say, from an investment standpoint it is something we want to watch. But we are. We're looking at this, and it's 1 of the reasons that we have maintained diversified exposure into international markets right now, and you want to be invested. You don't just want to diversify at the company level at the country level, but at the currency level as well. And so when you're investing in overseas assets, you're effectively diversifying away from the dollar as well. And so we are benefiting while this is happening. 

Rob Black 

Okay? And one more question. Then I'm going to let you go. Changes at the Ipc. What is the Ipc and are you making changes. What are you doing? 

Adam Phillips 

Sure. Well, the investment, the Investment Committee or Investment Policy Committee is a group that that meets, and we've certainly been talking quite a bit in in recent weeks, and as we. 

as we discussed our outlook and any changes that might be needed to the various strategies that we run and the reality, Rob, is that we have not made any changes in response to what's happened in recent weeks, and I think that the temptation is when we're faced with this type of volatility. I think that naturally, we feel like we need to do something. And well, you know, things are happening. Things are changing. I'm seeing the market decline. I need to do something here. 

And just kind of right the ship and the reality is, I think, what we are mindful of is that is, any psychological bias. And the fact that a lot of people end up making changes just for the sake of change. And that's not what we want to do. Our clients rely on us for our disciplined approach, and being very thoughtful in how we manage their assets. And so we came into this year in with a with a neutral posture, in terms of our overall asset allocation so neutral on, on equities. You compare that to how we were about 8 years ago when President Trump was 1st entered office and we said, Okay, he's going to be great for business. We're looking at potential for for tax cuts, less regulation. all these things which would be good for risk assets. And so we went overweight at that time, meaning we really stepped on the gas pedal across our portfolios at that time. Now you compare that to today, and we entered the year with really more of a neutral neutral posture, as I said, because, yes, even though we're talking about tax cut extensions, even though we're talking about the again, less of a regulatory burden. These things have the potential to fuel growth. 

We are also mindful that valuations are a lot higher than they were 8 years ago. Our deficits, a lot higher than it was 8 years ago. It's just a very different environment. That's the reason that we didn't want to step on the gas pedal this time around. 

And so obviously right now with the sell off that we've seen, we are happy that we stayed neutral. We've remained diversified outside of those magnificent 7 companies within the large Cap Equity space. And so our portfolios have certainly been able to weather this storm, as we've seen really the biggest drawdowns in those handful of companies that have led the charge here in recent years, and it's not that you want to abandon them completely, but 

I think that many have just assumed that that narrow leadership would continue forever, and we just didn't think that was the case. So we wanted to remain diversified, and that certainly helped. 

But just looking at it from the broader portfolio view, I mean, we maintain a focus on quality, and that's expressed in owning larger companies really shying away from those that have smaller balance sheets are going to find it just a trickier environment to operate in in fixed income, leaning into more high-quality assets not owning as much in, say, junk bonds or below investment grade bonds. And so. 

You know, I think really, this is one of those times when we feel that we're properly positioned. We're going to continue to watch things and see how things play out. But we're going to make sure that any changes we make are based on data and really on concrete information. What we don't want to do in an environment that is, this fluid is, make a trade and then have things just reverse the next day, and we've seen just over the last 2448 h. How things have changed so much with respect to potential exemptions for semiconductors and tariffs and potential exemptions in the auto sector. So this is a very fluid environment. And so you want to be very careful with any changes you make. 

Rob Black 

And as always, thank you. This is The Informed Investor Insights, and we got informed. I never knew the word de-dollarization. Adam, I learned a new word today. So he's Adam Phillips, managing director of investments at EP Wealth. If you have any questions about the market communication is super important in financial relationships. So don't be shy for The Informed Investor Insights. I'm Rob Black. Good day.