Commentary:

Primarily driven by tariff headlines, April was an incredibly volatile month for global equity markets. The month began with the April 2nd "Liberation Day," when the new administration announced reciprocal tariffs on over 50 countries. As investors priced in the effects of the proposed tariffs, the S&P 500 entered bear market territory, falling over 21% from its February highs. Just a few days after the initial announcement, the administration announced a 90-day pause on many of the proposed tariffs, causing the S&P 500 to have one of its best days on record, advancing nearly 10% in a single day.

As the month progressed, we were met with constant headlines such as "Trade Progress is Being Made" and "No Trade Progress is Being Made," causing global markets to whipsaw back and forth. Ultimately, the S&P 500 recovered most of its early April losses and finished the month down just -0.76%, up nearly 15% from the correction low on April 8th.

How much was chasing headlines by the general market participates versus well-disciplined investing? The amount of volatility and retail flows indicate that a lot of people were chasing headlines OR were reacting to the headlines that were put out there by the administration in the US and in Canada.

The number of countries and markets that have seen major changes has been surprising. In the Great White North (Canada), the political land space within the federal election shifted from a nearly certain Conservative federal government to a Liberal lead government in only 2 months. Words matter; markets and countries react to these words.

Going back to the US Markets, it is important to understand that bear markets often last much longer than initially anticipated and experience multiple rallies exceeding 10% along the way. Historical data from previous bear markets, such as those in 2000-2002, 2007-2009, and 2022 show that these rallies are a normal part of the market cycle.

To illustrate this, let’s examine charts from previous bear markets where the markets rose significantly before ultimately falling lower. Understanding that this type of price action is normal helps us as investors, not feel FOMO (Fear of Missing Out) when we see the markets rally on the latest Tariff news headline.

As illustrated by the charts above, bear markets in 2000, 2008, and most recently 2022, each experienced multiple rallies of +10% or even +15% before ultimately returning to new lows. It's important to note that these corrections typically unfold over a longer period, often taking more time than the 33 trading days it took to reach the bottom in 2025. To further illustrate this point, we have included a chart from Tier 1 Alpha that details all previous bear markets since 1927, highlighting the duration and magnitude of corrections from peak to trough.

While it is possible that the market bottom may be in, we remain cautious for reasons beyond those mentioned above. As many of you know, we rely on extensive quantitative data from Hedgeye Risk Management to assist us in our decision-making process. Their GIP model, which stands for Growth, Inflation, and Policy, is a fundamental research framework that categorizes these key components into quadrants to predict the current and future state of the economy. This high-level overview explains how we use the model and its significance. Currently, the model indicates that growth in the United States will continue to slow, therefore we must be cautious when looking to enter growth-oriented sectors. This same model helped us tactically adjust our portfolio in February, allowing us to avoid the major drawdown most portfolios experienced.

Conclusion

Tune out the noise and saber rattling of the media and the administration and focus on the numbers. Adam Smith described the markets using the term “invisible hand.” Stay focused on both the long term and short term goals. Blending the science of investing with the art of investing allows us to continue to prudently manage the short-term risk balanced out with the longer objectives and goals.

Our primary goal is not to time the market bottom but to carefully evaluate market opportunities while maintaining a disciplined investment approach. With approximately 11% cash in our portfolios, we are patiently waiting for buying opportunities to emerge from the Hedgeye models which we have already seen emerge in US sectors such as Consumer Staples and Utilities as well as in international markets like the Eurozone and India. We do expect to see elevated volatility continue in the market thus, we continue to manage our portfolios with an above-normal level of caution.

Model Performance Update

Our Moderate Model Portfolio returned -1.31% during the month of April and has returned 2.19% YTD

Changes to the model portfolio in April

4/8/2025

- Cut remaining position in XLI (Industrials), XLF (Financials), and EWC (Canada) in Satellite 1

4/9/2025

- Increased Exposure to BTAL (Market Neutral Anti-Beta) in Satellite 1

4/22/2025

- Reduced AAAU (Gold) and SIVR (Silver) exposure by Half in Satellite 1

- Replaced LQD (Investment Grade Corporate Bond) with XFIV (Five-year Treasury) in Satellite 2

4/24/2025

- Initiated position in XLP (Consumer Staples) in Satellite 1

4/29/2025

- Added SMIN (India Small Cap) to Satellite 1

5/1/2025

- Removed BTAL (Anti-Beta) and replaced with XLU (Utilities) in Satellite 1

April Performance with Benchmark

YTD Performance with Benchmark

If you were to have any questions regarding the above please reach out to us to set up a one to one meeting to review your situation.

Sincerely,

Bryant Andrus, MSF, CFP®

President

SBC Investment Management
P: (602) 641-5996
M: (319) 520-2033
E: bandrus@sbcinvestmentmanagement.com

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