LEVATUS Investments | Navigating Markets Through the Fog
The 2025 growth scare, fueled by unpredictable policies and shaky markets, demands investment perspective that reaches beyond the fog of the headlines.
Susan Dahl | CEO LEVATUS
Photo by Sergei Gussev
Rising inflation fears, shifting monetary policies, and geopolitical instability are unsettling markets and investor confidence. This research note examines the challenges, outlines a measured approach to managing risks, and reflects on taking advantage of the opportunities being created.
March 2025
The uncertainty introduced by President Trump’s rapid and aggressive tariff actions has caused markets to question the resilience of the U.S. economy, as well as the geopolitical framework within which the world has operated for decades. While equity markets have grown more jittery, credit markets have largely stayed calm, signaling that we may be facing something more complex than a typical market correction. As of today, the S&P 500 is down by about 10% from its recent all-time high. This is within the range of a ‘typical’ annual correction, but the potential for further turbulence is top of mind.
Below we begin with a bottom-line perspective on the key variables shaping the market and then follow this with strategic insights that help guide long-term investment planning.
Bottom-line
US equity markets are currently experiencing a ‘growth scare’ brought on by:
Uncertainty about consumer spending: The potential for reduced consumer confidence in the face of trade tensions and broader uncertainty.
Corporate investment risk: Heightened uncertainty may lead businesses to delay or scale back investments.
Employment concerns: Policy shifts, and corporate uncertainty could impact employment stability, creating a ripple effect on the broader economy.
Tariff impact: The ongoing tariff situation poses a risk to corporate margins and earnings, further complicating the outlook.
To start the year, stock prices reflected a lot of enthusiasm, as indexes reached all-time highs. Recent price declines have been more acute in part because of where we began.
Selling has been largely indiscriminate, and dry powder has allowed us to deploy cash to buy high-quality businesses at discounted prices. These opportunities are particularly appealing for companies with:
Significant productivity and efficiency potential driven by automation, digitization, deregulation, and the application of AI
High financial flexibility, supported by free cash flow
We expect this extreme volatility to continue
Appropriate allocation to ‘Funding’ assets/account particularly important
If labor markets weaken, an additional employment safety buffer may be appropriate.
Dry powder is valuable as panic creates opportunities
Focus on investments and companies that will continue to produce products the world needs for many years to come, and which have the financial flexibility to capitalize on disruption
Markets | Fears Drive Volatility
While the rear-view mirror reflects an incredibly resilient economy, with solid employment, good corporate earnings, and improving productivity driven by technology, markets are becoming increasingly concerned that trouble lies ahead. A quick review of the daily headlines tells the story.
Now that Trump has started a trade war, it could escalate. Or it could de-escalate. Either way, uncertainty has increased significantly, as evidenced by the sharp decline in stock prices. As the year began, markets took comfort in the strength of the economy and initially believed that Trump’s tariff talk was just ‘sound and fury’ to set the table for a better negotiating position. This has shifted to worry that tariffs are here to stay, and that rising consumer anxiety combined with long term tariffs will slow growth and potentially push the economy into a recession.
Despite these concerns the economy has remained largely resilient, as employment remains solid, wage gains are slightly higher than inflation, significant new corporate investment is planned, and technology continues to buttress efficiency gains and productivity.
Quality companies, the companies that deliver products that the world needs and values, have navigated many election cycles, the next of which will happen in under two years. Perhaps this, combined with an economy that the U.S. Federal Reserve describes as ‘solid’, is why the credit market has remained calm, so far.
Economy | Policy Support
Amidst rising uncertainty, it’s essential to understand the tools policymakers have—and don’t have—to support the economy. While fiscal stimulus from the pandemic era is waning, there are still levers available to help stabilize the economy:
Fiscal stimulus is fading: Since the pandemic, the global economy has been supported by incredibly large amounts of fiscal stimulus, made available through the issuance of ever-increasing amounts of government debt. With the downsizing of the U.S. government, fiscal support for economic activity is disappearing. In the long term this leaves room for the private sector to step in and create a more sustainable engine for growth, but in the here and now this transition will take time and is likely to be bumpy.
Interest rates provide room for support: With policy interest rate over 4% and well above inflation, the U.S. Federal reserve has significant leeway to lower interest rates to support consumers and the economy. (Most economists believe that tariffs will more likely slow growth than cause a surge in inflation.) In addition, the Federal Reserve has shrunk the size of its balance sheet quite substantially in recent quarters, giving it more policy flexibility on this front as well.
Global Policy Contrasts: While the U.S. is cutting fiscal stimulus, Europe and China are increasing it. In the near term this improves the relative economic growth outlook for regions outside the U.S. and provides a counterbalance to slower growth in the U.S. should it occur.
In the short term, these policy dynamics could help mitigate an economic slowdown should it appear.
Longterm Strategy | Core Operating Framework
We find a lot of value in the wisdom of Warren Buffet, who frequently reminds investors of the core principles that guide long-term success.
Over long periods of time equity markets rise.
Compounding returns is one of the most powerful wealth creation engines available, and investing consistently over time is the best way to capitalize on this.
A well-diversified portfolio can buffer against market fluctuations.
Equities are a good hedge against inflation, as companies can raise prices to offset inflationary pressure.
While cycles of uncertainty arise, technological advances, human creativity, and productivity gains drive economic expansion in the long run.
Our clients’ long-term strategy and the LEVATUS investment process are well-anchored in these core principles. This focus allows us to capitalize on the opportunities that arise during market volatility.
Portfolio Strategy
Our analysis of asset allocation strategy for LEVATUS clients always pays particular attention to the amount designated to Funding/Safety assets. As we have mentioned in past research notes, the strategy in this part of the portfolio remains squarely focused on financial flexibility, quality, and cash flow, with most assets deployed in a short-term U.S. treasury ladder that yield over 4% and spans maturities from six-month to five-years.
Client equity portfolios remain well diversified, emphasizing companies with strong margins, strong cash flow, and strong balance sheets. These attributes support financial flexibility in turbulent times, flexibility that allows well-managed companies to take advantage of opportunities as others panic. In addition, companies set to benefit from important trends like digitization, automation, de-regulation, and the application of AI continue to be an emphasis in growth portfolios.
As we mentioned in our year-end report to clients, the application of artificial intelligence (AI) and large language models (LLM) is expanding beyond a few tech giants, reaching a broader segment of the economy. Even amid recent volatility, we see evidence of this trend beginning to take hold across various sectors, creating long-term growth opportunities.
Summary
The current economic landscape presents both challenges and opportunities. The economy may soften somewhat, as - uncertainty slows consumer and corporate spending and fiscal stimulus wanes. Strong employment conditions alongside the positive impact of technology-driven productivity and efficiency gains offset this somewhat, as does a relatively stable credit market. There is also line of site to policy support if the economy weakens, as the U.S. Federal Reserve has ample policy flexibility to support growth if necessary.
While economic softness presents challenges, it also offers opportunities for those prepared with a long-term strategy. Diversification, maintaining liquidity, focusing on high-quality assets, and staying patient in the face of market volatility can help investors not only survive but thrive in uncertain times.
We always spend a lot of time on the analysis of client asset allocation to ensure appropriate ‘Funding/Safety’ resources. In times like this, the importance of this work stands out, allowing clients to ride out the inevitable bouts of equity volatility and benefit from the powerfully positive impact of compounding growth over long periods of time.
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LEVATUS | Distilling complex topics down to their essence
ABOUT THE AUTHOR
Susan Dahl is a seasoned executive, industry leader, and dedicated client advisor, with over thirty years of international and domestic financial experience. Susan is known for her ability to unravel complex questions, and has a steadfast commitment to well designed process. This background has translated directly into her work on investment process design for private wealth clients, as well the industry leading LEVATUS Integrated Wealth Service model; a modern design that addresses the many ways financial decision making impacts - financial security, relationships, and sense of purpose across generations. A deep and diverse background that extends from global investing, to risk management, to process development and planning, has laid the groundwork for an advisory solution that asks more of wealth. Susan shares some her most recent work in this TEDx , Can Happy Make You Money?
President Trump’s sweeping tariff policy has injected fresh uncertainty into global markets, amplifying concerns around trade dynamics, economic stability, and geopolitical strategy. In this turbulent environment, investors are challenged to disentangle what is certain, what remains uncertain, and what is truly significant.