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Market Month in Review – April 2025

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At a Glance

Macro Indicators: Headline and core PCE inflation rose by 2.3% and 2.6%, respectively, in March, signaling a continued albeit slow downtrend in inflation, but this reading was overshadowed by the advance estimate of 1Q 2025 GDP, which came in at -0.3% as imports surged ahead of tariff implementation. This is the first negative quarterly GDP reading since Q1 2022 and has amplified concerns of continued economic weakness due to tariffs. All eyes are on the labor market for signs of weakening, perhaps the most important macro indicator to watch right now.

Trump 2.0: The announcement of “Liberation Day” tariffs wreaked havoc on markets in April, and with a majority of the reciprocal tariffs paused until July 8, markets are waiting with bated breath for news of trade deals to potentially lessen the economic impacts of tariffs.

Fed & Monetary Policy: Fed Chairman Powell endured criticism from President Trump over the month but held firm on his apolitical views. Markets are pricing in four rate cuts this year with the Fed currently projecting only two rate cuts. Once again, the Fed is remaining data dependent when it comes to making monetary policy decisions. The market expects the next interest rate cut at the June FOMC meeting.

Equity Markets: Equity markets witnessed the worst 100 days of a presidency since Nixon in 1974, down over 7% since Trump’s second inauguration and experienced great volatility intra-month. Fixed income markets saw curves steepen and yields rise over the month, particularly in the municipal market, with investment grade tax equivalent yields north of 6% as of month-end. 1Q 2025 earnings season is underway, with relatively positive results thus far, but some companies are pulling forward guidance due to tariff uncertainty.

Asset Class Performance

International assets, encompassing equities and fixed income, continue to perform well on both a year-to-date (YTD) basis and over the past month. After an extremely volatile month, U.S. large cap equities ended relatively flat, with small cap equities posting more modestly negative performance as companies continue to struggle to price in the potential effects of tariffs.

Source: YCharts. Asset class performance is presented using total returns for an index proxy that best represents the respective broad asset class. U.S. Bonds (Bloomberg U.S. Aggregate Bond TR), U.S. High Yield (Bloomberg U.S. Corporate High Yield TR), International Bonds (Bloomberg Global Aggregate ex-USD TR), U.S. Large Cap (S&P 500 TR), U.S. Small Cap (Russell 2000 TR), Developed International (MSCI ACWI ex US TR), Emerging Markets (MSCI EM TR), and Real Estate (Dow Jones U.S. Real Estate TR)

Markets & Macroeconomics

Trump Tariff Turmoil

President Trump has been publicly vocal about tariffs and unfair trading practices since the 1980s, so it should have come as no surprise to markets that he would pursue tariffs as part of his policy agenda. But it wasn’t Trump’s implementation of tariffs on April 2’s “Liberation Day” that surprised markets, it was the severity and magnitude of those tariffs, which were doled out globally and targeted countries with disproportionate trade surpluses, revealed by an esoteric tariff rate calculation. Without getting into the details, countries like Cambodia and Vietnam were given a “reciprocal” tariff of 49% and 46%, respectively, two of the higher rates as a result of their large trade surpluses with the U.S. On the other hand, China received a tariff of 145%, which was driven up from the original rate after a day or so of retaliation, and all imports into the U.S. received a base tariff of 10%. The majority of these tariffs (except for China and the 10% base tariffs) were paused on April 9 for 90-days to allow trade negotiations to take place. These announcements over the course of a few days translated into some substantial market swings that were ultimately being driven by concerns over how tariffs will impact economies, particularly the American economy. Most people understand the broad intent of tariffs: to strengthen U.S. manufacturing capabilities, promote domestic job growth, and, importantly, reduce the U.S. trade deficit. What is more difficult to stomach are the potential costs incurred by Trump’s tariffs, which many believe will ultimately be borne by the U.S. consumer and producer in the form of higher prices, particularly if negotiations fall through and tariffs remain in place.

Exhibit 1: U.S. Capital Market Reaction to Tariffs

Source: YCharts

These potential costs are why “Liberation Day” induced the largest 2-day sell-off in history, which saw U.S. equity markets lose more than $6 trillion in value between April 3–4 and the S&P 500 hit a drawdown of over 18% from its year-to-date high (February 18). While the equity market reaction garnered most of the attention, we also witnessed a sell-off in U.S. Treasuries, which pushed the 10-Year yield to a high of nearly 4.5%, as well as in the U.S. Dollar, illustrating another consequence of Trump’s tariffs: a global diversification effort away from U.S. assets. This consequence fueled investor fears of massive selling of U.S. assets, particularly Treasuries, but, as usual, the reality is more nuanced. The U.S. remains a powerhouse and the home of the global reserve currency, and this position does not change overnight. What is likelier the case is that foreign countries are realizing they need to diversify outside of the U.S.

In months like what we just experienced, it is important to remember where we started. After witnessing strength for years, ushering in an age of “exceptionalism,” U.S. assets became rich both because of the advantageous investment environment and the large amounts of foreign capital that this environment attracted. Contrary to some current beliefs, today’s tariff turmoil is not proof that this “U.S. exceptionalism” is over, but it is likely an indication that U.S. assets are repricing to a more “normal” level. Just like individual investors, it is important for global countries to be diversified, particularly when uncertainty is present.

After Trump announced the 90-day pause on most tariffs, markets reversed course and soared to end the month relatively flat, illustrating how the worst days in the market are often followed by the best days, emphasizing the importance of staying invested. Trump’s (second) first 100 days were volatile thanks to tariffs, and this trend is expected to continue as trade negotiations play out in the short-term and potentially conflict with other parts of his administration’s agenda and, importantly, monetary policy decisions from the Federal Reserve.

The Bottom Line: The “Liberation Day” tariffs announced on April 2 drove a major market sell-off and heightened concerns about future U.S. economic growth. Negotiations will continue to play out meaning volatility is likely here to stay in the short-term, further emphasizing the need for diversification across asset classes.

Looking Ahead

Investing Amid Uncertainty

Thus far, the word best describing 2025 has been uncertainty: uncertainty related to what impact tariffs will have, what the Fed will do with interest rates and monetary policy, and which companies will win the “AI arms race.” Uncertainties will likely be prevalent in every investment environment, meaning the all-important question is not “will there be uncertainty?” but “how should I invest amid the uncertainty?” As the U.S. economy grapples with the highest tariff rates seen in decades, slowing growth, inflation above the Fed’s target, and an unruly (and unpredictable) government, investment decisions for long-term growth are more important than ever.

Following the intra-day and daily moves of markets can be exhausting and potentially even counterproductive for long-term investors. In these types of scenarios, focusing instead on age-old investment principles like diversification and paying the right price for the value of an asset can help create clarity and a greater sense of control around potential investment outcomes. Making investment decisions that are rational and rooted in valuations and quality also helps remove the emotional decision-making that can occur during volatile times like what we are witnessing today.

Valuations matter and heavy concentrations in portfolios and indices can enhance volatility. Even with the recent repricing, U.S. equity markets remain concentrated and over-valued: the Magnificent 7 stocks still represent 30% of the S&P 500 as of month-end and are driving 85% of the overall index’s share of returns on a year-to-date basis. Exhibit 2 illustrates common valuation metrics across various asset classes, demonstrating how U.S. equities are more over-valued than asset classes like international equities and fixed income. For instance, municipal securities look extremely cheap relative to historical averages, indicating a potentially attractive entry-point into the asset class, which is still boasting a substantial tax equivalent yield advantage over corporate fixed income. For context, 10-year AAA corporate yields are 4.8% versus over 7% on a tax equivalent basis in the municipal market for the highest federal tax bracket.

Exhibit 2: Current Valuations Across Asset Classes

Source: J.P. Morgan Guide to the Markets

It is this type of rational approach to investing that is warranted in the current environment where uncertainty is rampant. Perhaps more than ever, markets are being driven by emotions, which is being further amplified by the persistent, large concentrations and high valuations in certain asset classes, like U.S. large cap equities. Focusing too much on short-term market movements and trying to perfectly time the market is an unsustainable (and impossible) strategy for building long-term wealth. Rather, investors should instead be focused on areas of the market that are undervalued and attractive fundamentally and potentially rebalance away from those parts of the market that have become too rich. The current investment environment is creating unique challenges for investors but that doesn’t mean opportunities aren’t present. When all else fails, focus on valuations and quality to provide greater clarity and direction amid the uncertainty.

The Bottom Line: Amid uncertainty, go back to basics. Time-honored investment principles like diversification and valuation-driven decision-making can help maintain discipline and logic even when volatility and uncertainty rear their ugly heads.

Capital Markets Themes

What Worked, What Didn’t

•International Reigns Supreme: International equity outpaced U.S. equities in April as concerns over economic growth paralyzed U.S. equity markets, finally providing some justification for why having international exposure in one’s portfolio is important.

•Look Under the Hood on Munis: While municipal bonds underperformed taxable counterparts over the month, the market witnessed a steepening in its yield curve which caused longer end yields to rise, reinforcing that while bonds aren’t the best candidate for total returns in the current environment, they are a great source of income, particularly as it relates to municipal bonds.

Large vs Small Cap Equity

Growth vs Value Equity

Developed vs Emerging Equity

Short vs Long Duration Bonds

Taxable vs Municipal Bonds

Investment Grade vs High Yield Bonds

Source: YCharts. Data call-out figures represent total monthly returns

On Alternatives

Spotlight on Triple Net Lease Real Estate

Real estate can be an important portfolio diversifier and a predictable source of income, particularly during times of uncertainty. A net lease is a type of commercial lease agreement in which the tenant is not just responsible for paying the rent, but other costs as well. A triple net lease agreement means the tenant pays the rent, as well as the property taxes, insurance costs, and maintenance costs – three additional costs and hence the name triple. Triple net leases provide unique advantages to investors versus other types of real estate, making them a potentially attractive and diversified opportunity amid today’s macroeconomic uncertainty.

By nature, triple net leases are longer term, typically greater than 10 years, which provides stability for tenants, landlords, and investors alike. Tenants in this type of real estate are usually corporations or businesses, which means they usually prefer a longer-term lease to secure their location. This benefits both the investor and landlord as credit risk is relatively low with this type of high quality, stable tenant. Additionally, due to their longer-term nature, triple net leases typically have rent escalators built into the lease agreement that generally grow with inflation. While this feature does not eliminate inflation risk, it does mitigate the loss of purchasing power and supports cash flow stability even in periods with rising or high inflation. These escalators, in addition to the long-term nature of the leases, translate into less tenant rollover, lower vacancy risk, and greater predictability in income versus other shorter-term or non-escalating leases. Exhibit 4 outlines some key characteristics of triple net lease real estate versus multifamily real estate.

Exhibit 3: Real Estate Sector Comparison

Importantly, triple net lease real estate is often found in real estate investment trust (REIT) structures, which provide important tax benefits to investors, like favorable corporate tax treatment. In addition, landlords and investors can utilize depreciation shields on the property to reduce their taxable income, ultimately increasing the ability for income production. These tax implications for triple net lease real estate make it a compelling and diversified alternative to other income-producing asset classes. As with any type of investment, it is important to know what you own, and certain sectors of an asset class are more attractive or carry more risk than others.

For instance, focusing on triple net leases that are critical to a specific tenant’s operations enhances the stability and long-term occupancy of the property, which ultimately benefits investors. Investing in uncertain times can be difficult, but considering asset classes like triple net lease real estate may mitigate some of the consequences of uncertainty and ultimately provide some of the stability that investors are likely looking for. Exhibit 5 shows that during the 2008 housing crisis, net lease investments held up extremely well compared to other sectors of real estate.

Exhibit 4: Case Study in Net Lease Resilience

Source: Blue Owl Capital

The Bottom Line: Real estate can provide important benefits during periods of volatility, and triple net lease real estate can provide greater predictability through its stable income streams, strong tenant creditworthiness, and tax efficiency, all of which promote its resilient and inflation-resistant nature.

Asset Class Performance Quilt

Markets are ever-changing, making diversification across asset classes and sectors a critical component to portfolio construction. As illustrated below, a Balanced 60/40 portfolio provides greater consistency of returns and less volatility over time.

Source: YCharts. Asset class performance is presented using market returns from an exchange-traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by Centura Wealth Advisory. The performance of those funds may be substantially different than the performance of broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High Yield Bonds (iShares iBoxx $ High Yield Corp Bond ETF); Intl Bonds (Invesco International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI ACWI ex US ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “60/40 Allocation” is a weighted average of the ETF proxies shown as represented by: 40% U.S. Bonds, 12% International Stock, and 48% Large Blend.

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Q1 2025 Market Wrap: You get a tariff. You get a tariff. Everybody gets a tariff!

The first quarter of 2025 was marked by heightened volatility across global markets, driven by escalating trade policies and shifting investor sentiment. The uncertainty related to tariff decisions, including surrounding President Trump’s “Liberation Day” tariff announcement on April 2, dominated sentiment over the quarter, causing both the S&P 500 and the Nasdaq 100 to enter correction territory. This rampant uncertainty and subsequent volatility prompted asset managers like Goldman Sachs to slash their year-end target for the S&P 500 to 5,700 on heightened recession risks, which would only represent a ~1.5% increase from quarter-end levels.

Signs of defensive rotations emerged over the quarter, as investors flocked to gold (up 19% YTD) and Treasury bonds (10-year yield down 35 bps YTD) while high-quality/low-volatility stocks outperformed their growth counterparts, illustrating a broader flight to safety. Below are highlights from the first quarter of the year.

  1. The S&P 500 and Nasdaq 100 hit correction territory in March, dropping more than 10% from February’s peak. At their worst, on March 13, the S&P 500 and Nasdaq 100 were down 10.03% and 13.23%, respectively, from their peaks on February 19. The declines were largely driven by uncertainty surrounding impending tariffs, while negative performance in the tech-heavy Nasdaq 100 was driven by significant setbacks in tech mega-caps due to rising competition and valuation concerns.
  2. Tariff Turmoil Reshapes Markets: The Trump administration’s planned reciprocal tariffs (targeting 25% on auto imports and 20% on various “country-based” levies) created crosscurrents: U.S. energy producers rallied on potential Russian crude restrictions; the “Magnificent Seven” stocks extended their quarterly rout to nearly 16%; market correlations plunged to 25-year lows as investors scrambled to price disparate sector impacts; and the S&P 500 underperformed foreign equities by the largest margin since 2009.


    Source Link: Bloomberg

    Despite this turmoil, Morgan Stanley’s Mike Wilson noted, “This isn’t a market falling apart; it’s a market fighting through uncertainty” with recent geopolitical developments heavily influencing market dynamics. President Trump’s tariffs have stirred anxiety across global markets as investors weigh the potential economic fallout, with many sectors preparing for the implications of increased trade barriers
  3. European nations initiated major fiscal reforms aimed at bolstering infrastructure and defense spending, creating opportunities for domestic industries amid global uncertainty. U.S. equity markets have been particularly reactive to these developments, exhibiting pronounced swings due to potentially adverse impacts on U.S. economic growth and corporate earnings. While the Stoxx Europe 600 Index continues to benefit from renewed fiscal confidence, reinforced by Germany’s expansive infrastructure investment plans, U.S. indices grapple with regulatory and trade uncertainties. The crosscurrents between domestic and international equity markets reflect broader macroeconomic challenges as policymakers and investors navigate the evolving landscape of global trade and fiscal policy responses.
  4. Chinese startup DeepSeek emerged as a disruptive force with its advanced AI model. This development triggered a significant tech selloff, with the Nasdaq 100 experiencing a 3% drop in a single trading day. The announcement of DeepSeek’s low-cost, energy-efficient AI technology raised serious concerns over the valuations of U.S. tech giants that have dominated the AI landscape. Notably, Nvidia Corp., a key player in AI hardware, faced a dramatic market value reduction, losing almost $600 billion during this period. This unprecedented loss marked Nvidia’s worst performance since the initial pandemic-related market responses in March 2020. DeepSeek’s advancements have prompted a reevaluation of the high spending trajectory adopted by major companies like Microsoft Corp., Meta Platforms Inc., and Alphabet Inc., challenging their investment strategies in AI infrastructure and highlighting potential shifts in future technology investments.
  5. Cryptocurrency, once considered an ultra-high-risk investment, is gaining greater acceptance among retail and institutional investors. Despite the fluctuations in adoption, institutional interest in cryptocurrencies remains intact, demonstrated by recent fund inflows into crypto investment vehicles. A major example is BlackRock Inc. (BLK), who made headlines by announcing a significant expansion in its cryptocurrency offerings, attracting institutional investors and spurring additional fund inflows into the asset class, including the recent launch of a European Bitcoin ETP or exchange-traded product. Product expansions in this space underscore the sustained institutional interest in cryptocurrencies, with market analysts emphasizing the continued importance of monitoring regulatory dynamics and macroeconomic pressures as key drivers of cryptocurrency performance moving forward. Despite this recent momentum, Bitcoin (BTCUSD) is down nearly 11% to start the year.
  6. Geopolitical Tensions and Volatility: Mounting uncertainties within the financial markets due to global tariff dynamics and geopolitical tensions have added another layer of complexity to the investment environment. The tension between Israel and neighboring countries has intensified, impacting regional stability and influencing energy markets amid concerns over supply disruptions. Additionally, the war in Russia/Ukraine wages on with no clear path to a resolution, particularly after a heated discussion between President Trump and Ukrainian President Zelensky in February. These geopolitical strains have contributed to increased volatility in commodity prices, particularly oil, as market participants closely monitor developments for any potential escalation that could further disrupt supply chains. As countries in the regions navigate these challenges, investors are advised to remain cautious, considering the geopolitical risk premiums that might affect market sentiment and valuations.
  7. Gold prices set a new record in Q1 2025, surpassing $3,100 per ounce. The precious metal’s value soared more than 19% this quarter, marking its largest three-month gain since 2011. This substantial rise was fueled by heightened market uncertainty from U.S. tariff policy and geopolitical tensions, prompting investors to seek refuge in safe-haven assets. The rally in gold was further bolstered by significant inflows into bullion exchange-traded funds, which received $12.7 billion over the quarter, reflecting investor sentiment favoring risk-averse strategies amid the volatile economic landscape.
  8. The U.S. Dollar experienced notable fluctuations throughout Q1 2025, recording its worst first-quarter performance since 2017. The Bloomberg Dollar Spot Index, which rose slightly by 0.2% in the last week of the quarter, reflected broader concerns about rising tariff-related risks and global economic uncertainty. The Dollar’s declining strength can be attributed to increasing investor anxiety over President Trump’s trade policies, leading to movements toward safer currencies such as the Japanese yen and Swiss franc. These two haven currencies appreciated 1.8% against the Dollar amid escalating geopolitical and economic tensions.
Source Link: Bloomberg

Market Recap 

Equities – Equities in the U.S. struggled as the threat of trade wars and conflicting monetary and fiscal policies proved too much for stocks, resulting in their worst quarter since 2022. Under the hood of broad market performance, markets witnessed varied sector performances, painting a more nuanced picture of market dynamics in the current environment. The S&P 500 faced challenges, finishing the quarter down 4.27%, highlighting investor apprehension over President Trump’s evolving trade policies. The Nasdaq 100 experienced its worst quarterly performance in nearly three years, declining 8.07% amid fears of an AI investment bubble and uncertainties surrounding tech spending and valuation metrics.

Meanwhile, defensive sectors such as healthcare, utilities, and consumer staples thrived as investors flocked to safer corners of the market in response to mounting risks. Overall, the first quarter underscored the complexities and crosscurrents facing investors, with varied sector performances highlighting the necessity of strategic positioning in response to evolving fiscal policies and global economic dynamics. As Q2 unfolds, market participants remain vigilant, focusing on geopolitical developments and macroeconomic indicators to navigate the ongoing volatility in addition to sector diversification.

Bonds – The bond market also experienced significant volatility in Q1 2025, and, like its equity counterparts, this volatility was driven primarily by shifting economic expectations and geopolitical uncertainties. U.S. Treasury yields fluctuated notably, with the 10-year yield trading within a 65-basis point range, ending the quarter at approximately 4.23%. The uncertainty surrounding President Trump’s tariff policies has raised concerns about potential economic disruptions and inflationary pressures. As investors sought safe-haven assets amid these uncertainties, Treasury bonds saw increased demand, leading to periodic declines in yields and a positive 2.78% return in bonds, as measured by the Bloomberg U.S. Aggregate Bond Index.

High yield credit markets also faced turbulence, as spreads widened 63-basis points (0.63%) from 2.92% to 3.55%, the highest level since August 2024. Concerns over economic growth and corporate earnings, magnified by geopolitical tensions and trade policy shifts, contributed to a risk-averse sentiment that impacted credit markets. Despite these challenges, high yields bonds exhibited relative stability and still produced a 1.00% return over the quarter.

Market participants are closely monitoring the Federal Reserve’s policy stance and anticipated economic data releases, which will likely influence bond market dynamics in the coming months.

Source: YCharts. The Bloomberg US Aggregate Index was used as a proxy for Bonds; the Bloomberg US High Yield 2% Issuer Capped Index was used as a proxy for High Yield Bonds; the Russell 2000 Index was used as a proxy for Small Cap Equities; and the MSCI ACWI Ex USA Index was used as a proxy for Foreign Equities.  All returns are based on total return levels as of 3/31/2025.

Economy: GDP and Consumer Spending in Q1 2025

Consumer spending in the first quarter of 2025 demonstrated subdued growth, reflecting a cautious atmosphere among consumers due to economic uncertainty and rising inflationary pressures. After declining 0.6% in January, inflation-adjusted consumer spending edged up merely 0.1% in February, revealing hesitation in household expenditures. February was notably challenging, as Americans reduced spending on services for the first time in three years, a direct result of persistent price increases and economic concerns. The slow pace of consumer spending highlights mounting anxieties over the broader economic landscape, which is becoming further complicated by significant geopolitical and domestic policy challenges, including ongoing tariff disputes.

The challenges faced by the U.S. economy in the first quarter of 2025 were further demonstrated in the projections for real GDP growth. According to the GDPNow model estimate from the Atlanta Fed, real GDP growth for Q1 2025, as of March 28, is projected to be -2.8%, representing a stark contrast from the same model’s forecast on February 21, which projected the U.S. economy would grow at +2.3% annualized rate. This downturn also marks a notable shift from previous quarters, reflecting widespread economic uncertainties and the impact of tariff policies. The alternative model forecast, which accounts for imports and exports of gold, adjusted the decline to a milder -0.5%, a further illustration of investors’ flock to safety over the quarter.

Source Link: Atlanta Fed GDPNow

Factors contributing to this sharp decline include a notable reduction in net exports, which dragged down GDP growth by an estimated -4.79% in the standard model. While we believe the economy is slowing and facing several headwinds marred with uncertainty, we recognize that the estimates from the Atlanta Fed may be more dire than we actually experience, particularly since the spike in imports is a result of companies accelerating purchases ahead of tariffs, which will likely be offset in the Inventories measure and result in a more negligible outcome than the Atlanta Fed model is forecasting. The ongoing trade tensions, particularly those involving tariffs, cast a shadow over economic activities, leading businesses and consumers to exercise caution. As these dynamics unfold, market participants should closely watch for potential policy responses and economic indicators that could signal recovery or further challenges in the quarters ahead. Additionally, as clarity is gained on tariff policy, we expect some of these trends to reverse or improve.

Source Link: Atlanta Fed GDPNow

It is worth mentioning that the implementation of tariffs is largely motivated by reducing the federal trade deficit, which has been in deficit since the 1970s, meaning that the U.S. has been importing more than it has been exporting for decades. Observing this trend helps explain why President Trump is aggressively pursuing tariffs to help accomplish his “Make America Great Again” agenda – bringing manufacturing jobs back to America and incentivizing the consumption of domestic goods should theoretically improve the U.S. economy in the long-term, all while reducing the trade deficit. Additionally, when imports exceed exports, foreign economies benefit more, and the domestic government must stimulate domestic growth in other ways, typically through government spending, which ultimately can lead to budget deficits. This means that trade deficits are connected to budget deficits, so reducing the trade deficit through tariffs should bode well for the U.S. economy in the long-term, but, as President Trump has indicated, the consumer may feel some pain in the short-term.

Labor Market Dynamics

A mix of growth and challenges characterized the labor market in the first quarter of 2025, as the U.S. economy navigated the broader economic uncertainties. Nonfarm payrolls increased by a seasonally adjusted 151,000 in February, representing a stable yet cautious expansion versus expected figures of 170,000. Despite this positive trend, the unemployment rate edged higher to 4.1%, indicating some softening in labor market conditions.

Within this landscape, specific sectors exhibited varying employment trends. Healthcare continued to lead job creation with 52,000 new positions, followed by gains in financial activities and transportation. However, sectors such as retail and government experienced declines, reflecting the impact of administrative changes and fiscal policies being carried out by the Department of Government Efficiency (DOGE), led by Elon Musk. The reductions made by DOGE caused federal government employment to drop by 10,000 jobs as efforts to reduce the federal workforce began to manifest, with future reductions anticipated. These efforts, part of a broader initiative to streamline government operations and improve efficiency, are expected to continue over the coming months, potentially impacting labor market trends and federal services.

Market participants are keenly observing upcoming jobs report releases for signals of employment trends, especially as economic conditions remain highly influenced by geopolitical and domestic fiscal developments.

Inflation, Stagflation, and Monetary Policy

In the first quarter of 2025, inflation trends exhibited volatility, impacted by persistent economic uncertainties and evolving trade policies. Core inflation, as measured by the Personal Consumption Expenditures (PCE) price index, accelerated to 2.8% annually in February, indicating heightened inflationary pressures that outpaced the Federal Reserve’s 2% target. The rise in core inflation was driven by sustained increases in the costs of goods and services, fueled partly by anticipatory spending ahead of tariff implementations. February’s higher inflation reading, paired with retaliatory tariff projections and slowing consumer spending, has evolved into concerns about stagflation — a troubling combination of slowing economic growth and persistent and elevated inflation. These concerns were underscored by a Bloomberg Economics analysis, which warned that the anticipated tariffs could elevate U.S. tariff rates significantly, creating a drag on GDP of up to 4% and pushing inflation higher by about 2.5% over several years.

The consumer spending lethargy reflected heightened household budget constraints alongside an uptick in inflation expectations to a nearly 30-year high, as surveyed by the University of Michigan. Given these dynamics, combined with mounting consumer and business anxieties over Trump’s trade policies, economists are forming a growing consensus that the U.S. economy could face both a slower growth trajectory and elevated price levels, challenging policymakers to navigate these choppy economic waters effectively.

Source: The University of Michigan Survey of Consumers

Though mostly taking a backseat to President Trump in the first quarter, monetary policy remained a focal point as the Federal Reserve maintained its benchmark interest rate in the 4.25% to 4.50% range at their March Fed Meeting. Central bank officials expressed concern over the potential inflationary impact of tariffs, with conflicting views on whether these price pressures would be transient or more persistent. Interestingly, Atlanta Fed President Raphael Bostic highlighted a cautious stance, refraining from labeling the inflationary effects as “transitory,” a word steeped in history. The Fed had initially termed the recent post-COVID inflation surge as transitory, when it ended up being the worst bout of inflation the U.S. has seen since the 1980s and a fight the Fed is still fighting today, so markets are sensitive to the use of this word in today’s environment. This cautious monetary approach indicates the Federal Reserve’s intent to closely monitor forthcoming data and global economic developments closely, ensuring that policy adjustments align with evolving inflation trends and economic conditions.

The Fed’s updated Statement of Economic Projections confirmed their pace of rate reductions in 2025 of 50 basis points or two potential 25 basis point cuts. The Federal Reserve updated its economic projections to reflect its concerns about a slowing economic environment, as evidenced by its lower real GDP outlook, higher unemployment, and elevated inflation estimates. As market participants navigate these nuanced dynamics, attention remains focused on future monetary policy decisions and their implications for broader economic stability. We anticipate the Fed to maintain its patient and methodical approach to future rate reductions, particularly in the absence of clarity on fiscal policy.

Centura’s Outlook

As we wrote in our letter to clients addressing the market volatility and correction in mid-March, “Ultimately, in the absence of clarity on the path of fiscal and monetary policy, now is not the time to make drastic changes to investment positioning.”

Unfortunately, the outcomes expected to result from proposed political changes are in direct conflict with the Fed’s dual mandate of maximizing employment and achieving price stability, at least for the near future. For example, sweeping tariffs on U.S. trading partners are likely to increase prices, stoking the very inflation that the Fed is trying to tame. This contrast has led investors to react to speculation and flock to safe-haven investments like bonds and gold. Given the erratic decision-making of our Commander in Chief, we expect volatility to continue to plague markets until more clarity is provided. As discussed, several potential risks are looming and investors should proceed carefully.

Prospects of a U.S. recession are mixed, not only among economists, but asset classes as well. As Chris Ellis, a high-yield bond portfolio manager at Axa Investment Managers stated, “Credit markets in the U.S. are pricing in a much lower chance of a recession than equity markets are and something has to give.” In mid-March, a JPMorgan Chase model indicated the S&P 500 was pricing in a 33% probability of a recession, while credit markets are implying a recession probability of 12%. While markets observed a selloff in high yield credit spreads along with equity markets, history would indicate a significantly larger selloff would need to occur to start sounding the recession alarm bells. Credit spreads generally foreshadow a recession when the premium for junk bonds approaches 8%, or 800-basis points. The current credit spread is 3.55%. The health of today’s credit markets illustrates how equity investors are likely overreacting to speculation surrounding the long-term impacts of the policies. While we don’t believe a recession is imminent, we are closely monitoring any further deterioration in credit as policies unfold.

Source: YCharts. US High Yield Master II Option-Adjusted Spread levels as of 3/31/2025

On a more positive note, the downward pressure on the price of stocks factored with stronger than expected earnings growth has brought valuations in line with more reasonable levels. According to FactSet, the forward 12-month price-to-earnings ratio (P/E) declined from 22.3x at year-end to 20.5x as of March 28, which is now only slightly higher than both the 5-year and 10-year averages of 19.9x and 18.3x, respectively. As we witnessed in the first quarter, valuations continue to pose a risk to the market, as negative sentiment can lead to sharper sell-offs on overvalued securities. While the concentration of the top 10 largest stocks in the S&P 500 fell in Q1 2025, they still pose a significant risk. According to JPMorgan, the 10 largest constituents represent 35% of the index, as of March 31, slightly down from 38.7% at year-end.

As we communicated in our 4Q 2024 Market Wrap, and reiterated in our March client letter, concentrations like this make the index vulnerable to significant changes in those underlying companies, particularly when those 10 companies are more overvalued than the remaining 490 companies. The P/E of the top 10 is currently 24.4x, while the remaining stocks currently boast a P/E in line with their 10-year averages of 18.3x. Concentrations like this are precisely why we favor global diversification across several asset classes – both public and private – and helped support our decision to reduce both large-cap and large-cap technology stock exposure in our allocations at the beginning of the year.

Source: JPM Asset Management Guide to the Markets

In the face of higher costs, corporate profits remain resilient, as illustrated by the sixth consecutive quarter of positive earnings growth by the S&P 500, rising a remarkable 18.2% in the fourth quarter. As of March 28, FactSet estimates first-quarter earnings to expand at a slower pace of 7.3% year-over-year. Earnings season will kickstart in early April, where we will be keying in on management’s commentary on the impacts of fiscal and monetary policy changes on forward-looking earnings projections and capital expenditures (investment), and we fully anticipate witnessing revisions to the downside.

From the political leader changes in France, Germany, and Canada to the ongoing armed conflicts, notably in the Middle East, where tensions between Israel and Iran remain escalated, and in Russia-Ukraine where discussions are evolving between Putin, Zelensky, and Trump – international markets remain on fragile ground despite their strong first quarter returns. As these international disputes unfold, they have a cascading effect on market sentiment, influencing everything from currency valuations to sector performance.
The specter of further geopolitical instability remains a crucial factor to monitor, particularly in retaliation to the unveiling of “Liberation Day” tariffs on April 2. Potential policy responses from global leaders are poised to have far-reaching consequences for economic forecasts and asset allocations worldwide. We anticipate that both the announcement of the “Liberation Day” tariffs and global leaders’ responses will generate increased market volatility, further supporting the case for global diversification across both public and private markets.

In conclusion, Q1 2025 started on a sour note, and until we have clarity surrounding fiscal and monetary policy, we expect sentiment to deteriorate further. Our allocations remain balanced and in line with our long-term targets. We expect volatility to remain in the short-term as markets work through the political noise and reassess potential economic ramifications; however, in the longer-term, we expect solid earnings growth to drive equity markets. Diversification across several public and private market asset classes should serve clients well in 2025 as we navigate this complex investing environment. As always, investors should remain vigilant to potential risks while positioning themselves to capitalize on opportunities in the evolving market landscape.

Thank you for your continued confidence and support. If you have questions or concerns, please contact your Centura Wealth advisor.

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.  

The views expressed in this commentary are subject to change based on the market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.   All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed.  There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

Centura Wealth Advisory is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Centura Wealth Advisory and its representatives are properly licensed or exempt from licensure. 12255 El Camino Real, St. 125, San Diego, CA 92130.


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Long-Term Investing: Why Market Timing Fails and Diversification Wins

With Chris Osmond, Chief Investment Officer at Centura Wealth Advisory

Investing in today’s market can feel overwhelming, especially when headlines highlight record market highs or economic downturns. But as Chris Osmond, Chief Investment Officer at Centura Wealth Advisory, emphasizes, the key to long-term wealth growth isn’t timing the market—it’s staying invested and diversifying effectively.

The Myth of Market Timing

Many investors hesitate to put cash to work when the market is at an all-time high, fearing an inevitable correction. However, market highs often lead to even higher returns over time.

“A bull market doesn’t have a timeline. Historically, returns are stronger when you invest at an all-time high than waiting for a correction that may never come.”
— Chris Osmond, Centura Wealth Advisory

Case in point: in 2023, the S&P 500 reached 57 all-time highs and delivered a 25% return. Investors who stayed in cash waiting for a pullback missed out—not only on market gains but also on purchasing power due to inflation. Cash yields, though modest, were outpaced by inflation, leading to a negative real return.

The Cost of Sitting on the Sidelines

Avoiding market volatility can feel safe, but it often leads to long-term losses. Missing just a few of the market’s best days can drastically reduce overall returns. Historically, the best market days closely follow the worst, meaning pulling out during downturns can be costly.

“The best days in the market typically come right after the worst days. Reacting emotionally to short-term volatility can lock in losses and prevent recovery.”
— Chris Osmond, Centura Wealth Advisory

For example, investors who sold during the COVID-19 market crash in March 2020 missed the rapid recovery that followed. Losses are mathematically harder to recover than gains—losing 20% requires a 25% gain to break even, while a 50% loss demands a 100% recovery.

Risk Management Through Diversification

At Centura Wealth, minimizing loss is just as important as pursuing gains. The focus is on delivering superior risk-adjusted returns by managing drawdowns and avoiding large losses that hinder long-term wealth accumulation.

Diversification is key. Portfolios are structured across a range of asset classes—public equities, bonds, and alternative investments—to reduce volatility and balance risk. Alternative investments like private equity, private credit, and real estate play a crucial role in reducing market correlation.

The Role of Alternatives in Wealth Growth

Alternative investments offer lower correlation to traditional markets, reducing overall portfolio risk while enhancing potential returns. Private real estate, for example, not only diversifies portfolios but also provides significant tax advantages through depreciation and bonus depreciation from cost segregation studies.

“Real estate offers a natural inflation hedge and delivers major tax benefits when held directly. Our clients benefit from personalized, thoroughly vetted opportunities that align with their wealth goals.”
— Chris Osmond, Centura Wealth Advisory

Direct real estate investments, particularly in multifamily housing, allow clients to offset passive income with accelerated depreciation, improving cash flow and reducing tax liability.

The Centura Investment Philosophy

Centura Wealth Advisory believes in creating resilient, diversified portfolios tailored to each client’s unique financial goals. The firm prioritizes thorough due diligence, especially when selecting alternative investments, to ensure every investment aligns with clients’ long-term objectives.

Key principles include:

  • Risk Management: Limiting drawdowns to protect capital.
  • Diversification: Spreading investments across asset classes and geographies.
  • Tax Efficiency: Incorporating tax-advantaged strategies to maximize wealth growth.

Ready to secure your financial future with a strategic, diversified investment approach?

Connect With Centura

At Centura Wealth Advisory, we go beyond a traditional multi-family office wealth management firm to offer advanced tax and estate planning solutions which traditional wealth managers often lack in expertise, knowledge, or resources to offer their clients.

We invest heavily into technology and systems to provide our clients with fully transparent reporting and tools to make informed decisions around their wealth plan.

Connect with our team today to learn how we can help you navigate complex financial decisions and secure your financial future with confidence.

Disclosures

Centura Wealth does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein.  All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice.  We recommend that you seek the advice of a qualified attorney and accountant.

For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).  Please read the disclosure statement carefully before you engage our firm for advisory services.

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Ep. 107 Navigating Post-Election Exemption Planning

What Post-Election Exemption Planning Means for Your Estate

With the current federal estate tax exemption set to sunset at the end of 2025, high-net-worth individuals have a rare opportunity to optimize their wealth transfer strategies.

In this episode of Live Life Liberated, host Bryan Schick is joined by Dan Stolfa, Senior Wealth Advisor and former trust and estates attorney at Centura Wealth Advisory. Together, they unpack the complexities of post-election exemption planning and offer guidance for those looking to preserve their wealth through thoughtful, proactive planning.

Understanding the Impending Sunset of Estate Tax Exemptions

Currently, each individual is allowed to transfer up to $13.99 million tax-free during their lifetime or at death. For married couples, that number approaches $28 million. However, under current law, that exemption is scheduled to revert back to approximately $7 million per person in 2026.

“It’s basically a use-it-or-lose-it situation. If you don’t use your full exemption before 2026, you’re going to lose the excess over the new limit,” explains Stolfa.

The Centura team urges clients not to delay. While it’s tempting to adopt a wait-and-see approach, the risk of missing this window could be costly in estate taxes and missed planning opportunities.

Portability and Legislative Risk

Portability allows a surviving spouse to utilize a deceased spouse’s unused exemption. While this provision remains helpful, Stolfa points out that “legislative gridlock” and other federal priorities make the likelihood of extending current exemptions uncertain.

“If nothing happens, this law will sunset. That’s the only thing we know for sure,” says Stolfa.

Given how quickly high-caliber attorneys, appraisers, and CPAs are getting booked, Centura advises clients to begin planning now—not in Q4 of 2025.

Tailored Planning for Different Net Worth Levels

Centura helps clients across a spectrum of wealth levels determine how to approach exemption planning. Stolfa and Schick break down three key tiers:

For Net Worth Under $20 Million

  • Planning is more nuanced and depends heavily on age, risk tolerance, and future lifestyle needs.
  • Portability may offer enough flexibility for some families.

For Net Worth Around $28 Million

  • Consider using one spouse’s full exemption now, leaving the other available in case the law does not sunset.
  • Use of spousal lifetime access trusts (SLATs) or similar structures can allow for future access if needed.

For Net Worth Above $35 Million

  • Stolfa notes: “At these levels, transferring the full amount now makes a lot of sense—especially for older individuals with shorter planning horizons.”
  • Advanced modeling and scenario planning become critical.

The Urgency to Act

Clients often believe they can wait until the final quarter of 2025 to act, but Stolfa warns that the logistics—such as valuations, entity reviews, and attorney drafting—require time.

“Everyone that we’re talking to on the professional side says the same thing: Start now, or risk not being able to act at all before year-end,” he advises.

Why Centura?

Centura’s integrated team approach coordinates attorneys, CPAs, appraisers, and investment professionals to design tax-efficient strategies. By quarterbacking the process, Centura ensures nothing is missed, and that clients use their exemption wisely, with confidence.

“We help clients evaluate their exemption, current balance sheet, and cash flow over time. It’s not just about moving assets—it’s about long-term alignment,” says Schick.

Final Thoughts

As the window on historically high estate tax exemptions begins to close, families with significant wealth have an extraordinary—but temporary—opportunity.

Start early. Get the right advisors in place. And make sure your plan reflects both your financial goals and your family values.

Disclaimer

The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Centura Wealth Advisory. The content has been made available for informational and educational purposes only. The content is not intended to be a substitute for professional investing advice. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.Centura Wealth Advisory (Centura) is an SEC-registered investment advisor with its principal place of business in San Diego, California. Centura and its representatives are in compliance with the current registration and notice filing requirements imposed on SEC-registered investment advisors in which Centura maintains clients. Centura may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Past performance is no guarantee of future results. Tax relief varies based on client circumstances, and all clients do not achieve the same results.

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Advanced Gifting Strategies: Reducing Tax Burdens with Appreciated Assets

Wealth management isn’t just about accumulating assets; it’s also about ensuring they are used effectively to benefit you, your loved ones, and the causes you care about. Advanced gifting strategies, such as donating appreciated assets, offer a powerful way to reduce your tax burden while making a meaningful impact.

By gifting assets like stocks, real estate, or other investments that have grown in value, you can bypass the capital gains taxes you’d owe if you sold them. This strategy also allows you to lower your taxable estate and maximize the value of your wealth transfer. Whether your goal is to support family members, fund a charity, or enhance your estate planning, understanding how to use appreciated assets as part of a gifting strategy can provide significant financial and tax benefits.

Understanding Appreciated Assets

Appreciated assets are investments that have increased in value since their purchase. Instead of selling these assets and incurring capital gains taxes, you can gift them directly to others.

Examples include:

  • Stocks and Mutual Funds: These are among the most common types of appreciated assets. Transferring ownership can be done quickly and efficiently.
  • Real Estate: Gifting property that has appreciated over time can significantly reduce your taxable estate.
  • Collectibles and Art: Items such as antiques, rare coins, or artwork that have increased in value are also viable options for gifting.
  • Business Interests: For business owners, gifting a portion of business equity can serve as a strategic method for transferring wealth while maintaining operational control.

Who benefits? Both individuals (e.g., family members) and charitable organizations can gain from these gifts.

Tax Advantages for the Giver

The primary benefit of gifting appreciated assets lies in the significant tax advantages for the giver. These include:

  1. Avoiding capital gains tax: By gifting an appreciated asset instead of selling it, you sidestep the capital gains tax that would otherwise be due.
  2. Reducing taxable estate: For high-net-worth individuals, gifting can help reduce the value of your estate, potentially lowering estate tax liabilities.
  3. Maximizing annual gift exclusions: Each year, you can give up to $19,000 (as of 2025) per recipient without triggering gift tax filing requirements. This amount is adjusted periodically for inflation, so it’s essential to check current IRS limits.

Tax Advantages for the Recipient

Recipients of appreciated assets also benefit, but it’s essential to understand the nuances:

  • Stepped-Up Basis for Inheritances: While gifts do not receive a step-up in basis, inherited assets often do. Understanding the differences between gifting and inheritance is crucial for long-term tax planning.
  • Lower Capital Gains Tax Rate: If the recipient is in a lower tax bracket, their tax liability when selling the asset may be much less than yours.
  • Charitable Organizations: Nonprofits are exempt from paying capital gains taxes. This means they can sell gifted assets and use 100% of the proceeds for their mission.

Charitable Giving with Appreciated Assets

For philanthropically inclined individuals, gifting appreciated assets to charitable organizations provides a unique opportunity to maximize your impact while reducing your tax liability.

Benefits for the Donor:

  • Fair Market Value Deduction: When donating appreciated assets to a qualified nonprofit, you can deduct the fair market value of the asset from your taxable income, subject to IRS limits (typically 30% of your adjusted gross income for appreciated assets).
  • No Capital Gains Tax: You avoid paying taxes on the appreciation, which increases the overall value of your donation.

Benefits for the Charity:

  • Full Use of Proceeds: Charities can liquidate the asset without incurring taxes, ensuring they can use the full amount to further their mission.

Best Practices for Gifting Appreciated Assets

To maximize the benefits of gifting appreciated assets:

  1. Consult Financial and Tax Advisors: Ensure your gifting strategy aligns with your overall financial goals and complies with current tax laws.
  2. Select Appropriate Assets: Choose assets that have appreciated significantly and consider the recipient’s tax situation.
  3. Understand IRS Limits: Be aware of annual and lifetime gift tax exclusions to avoid unintended tax consequences.
  4. Maintain Proper Documentation: Keep detailed records of the gifted assets, including their fair market value and date of transfer, to substantiate tax deductions.

Common Pitfalls and How to Avoid Them

Despite its advantages, gifting appreciated assets can come with challenges. Avoid these pitfalls to ensure a smooth process:

  • Overlooking Recipient Tax Implications: Recipients may be subject to capital gains taxes when they sell the asset. Discuss this aspect beforehand to prevent surprises.
  • Exceeding Gift Tax Limits: Gifts exceeding the annual exclusion limit may require filing a gift tax return and could reduce your lifetime exemption.
  • Neglecting to Update Your Estate Plan: Ensure your gifting strategy aligns with your overall estate and wealth management plans.
  • Failing to Consult Advisors: Without professional guidance, you may inadvertently create tax complications for yourself or the recipient.

Final Notes

Gifting appreciated assets is an advanced strategy that combines financial savvy with generosity. By understanding the tax advantages, planning carefully, and seeking expert advice, you can reduce your tax burden, benefit loved ones or charitable causes, and maximize the impact of your wealth.

Whether you’re looking to support your family or make a meaningful difference in your community, appreciated assets are a powerful tool for reducing taxes while preserving your legacy.

Connect With Centura

At Centura Wealth Advisory, we go beyond a traditional multi-family office wealth management firm to offer advanced tax and estate planning solutions which traditional wealth managers often lack in expertise, knowledge, or resources to offer their clients.

We invest heavily into technology and systems to provide our clients with fully transparent reporting and tools to make informed decisions around their wealth plan.

Read on to learn more about our 5-Step Liberated Wealth Process and how Centura can help you liberate your wealth.

Disclosures

Centura Wealth does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein.  All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice.  We recommend that you seek the advice of a qualified attorney and accountant.For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).  Please read the disclosure statement carefully before you engage our firm for advisory services.

Annual review, business, customer review. Action plan, review evaluation time for review inspection assessment auditing. Learning, improvement, planning and development. End of year business concept.
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Market Month in Review – February 2025

Download as a PDF

At a Glance

Macro Indicators: Headline and core PCE inflation rose by 2.5% and 2.6%, respectively, in January. These increases matched expectations but, combined with higher CPI data, grew consumer worries that inflation may remain elevated. The January jobs report gave mixed signals, with only 143,000 jobs added in the labor market (vs. a 169,000 forecast), but another drop in the unemployment rate to 4.0%. Atlanta Fed GDPNow estimates for Q1 2025 GDP surprisingly turned sharply negative as of month-end.

Trump 2.0: Tariffs dominated headlines over the month, with a 10% tariff on China currently in place and possibly more tariffs coming on countries like Mexico, Canada, and the EU, in addition to reciprocal tariffs.

Fed & Monetary Policy: The Fed continues to reiterate its patient approach to interest rate cuts. The minutes from the January FOMC meeting revealed that tariffs are troubling the Fed, which could potentially result in fewer interest rate cuts than initially projected this year. As of the December “Dot Plot,” Fed officials have projected two 25-bps cuts in 2025.

Equity Markets: Major U.S. indices finished February in the red after a volatile month. The Q4 2024 earnings season is nearly wrapped up, with 97% of companies in the S&P 500 having already reported. The current quarterly earnings growth rate on a year-over-year basis is 18.2%, well above initial expectations.

Asset Class Performance

Somewhat surprisingly, Trump’s tariff announcements over the month hit U.S. equity markets hardest, whereas international equity markets posted modest growth. Real estate was the best performer over the month, a likely result of heightened inflation expectations, and bond markets saw positive growth, with investment grade outperforming high yield.

Source: YCharts. Asset class performance is presented using total returns for an index proxy that best represents the respective broad asset class. U.S. Bonds (Bloomberg U.S. Aggregate Bond TR), U.S. High Yield (Bloomberg U.S. Corporate High Yield TR), International Bonds (Bloomberg Global Aggregate ex-USD TR), U.S. Large Cap (S&P 500 TR), U.S. Small Cap (Russell 2000 TR), Developed International (MSCI ACWI ex US TR), Emerging Markets (MSCI EM TR), and Real Estate (Dow Jones U.S. Real Estate TR).

Markets & Macroeconomics

Trump’s Approach to Tariffs

February brought lots of action on the tariff front. President Trump applied tariffs on China (with possibly more to come) and threatened tariffs on neighboring countries Canada and Mexico, as well as commodities, like aluminum and steel. The administration also launched an investigation into the trading practices of copper, and in retaliation from impacted countries, Trump announced potential “reciprocal” tariffs, which could affect U.S. goods like electronics, motor vehicles, and pharmaceuticals. While most of these policies have not been implemented, taken in total, they could push tariff rates to their highest level since the 1930s, begging the questions: why higher tariffs now and should markets be concerned?

In answering the first question, it is important to remember that a tariff is a tax on imports, which typically raises prices for domestic consumers, but, theoretically, allows domestic producers to better compete globally – a stance that supports Trump’s “Make America Great Again” mantra. Higher tariffs should support domestic production of goods, making the U.S. less reliant on imports, hopefully to the dual benefit of promoting U.S. manufacturing and reducing the country’s trade deficit, which has been in deficit since the 1970s, illustrated in Exhibit 1. Trump’s tariffs are also meant to curb “national security” threats, including illegal immigration and drug trafficking, from places like China, Canada, and Mexico. When Trump focuses on “national security” measures, he is using tariffs as more of a negotiating tactic to end unfair trade practices and impose stricter border controls, all while producing government revenue to offset spending in other areas of his fiscal policy agenda. Whether or not all of Trump’s proposed tariffs will be implemented, there is no doubt that higher tariffs represent a departure from the low tariff environment that characterized much of the American 20th century, illustrated in Exhibit 2.

Exhibit 1: U.S. Goods Trade Balance to GDP

Source: Federal Reserve Bank of St. Louis

Tariffs in the context of 2025, however, have introduced concerns on their impact to inflation and economic expansion. So, should markets be concerned? The answer boils down to maybe. Tariffs can increase prices for the domestic consumer, and while this doesn’t always have a broader inflationary impact, they could threaten the progress the U.S. has made on inflation in the past two years, which investors worry could result in a potential slowdown in growth. If tariffs are indeed being used as a negotiating tactic, it could also spark trade wars with key trading partners (think China), which could have more lasting economic impacts. As with anything related to politics, uncertainty is perhaps the only thing that is certain, and investors should continue to focus on the potential economic impacts of tariffs while filtering through the political noise as best as possible. Tariffs are not the end of the world, but American consumers may feel some pain if (and when) implemented.

Exhibit 2: U.S. Average Effective Tariff Rate

Source: The Budget Lab

The Bottom Line: Tariffs are being used by the Trump Administration as a negotiating tactic to promote his “Make America Great Again” agenda and generate additional revenue for the government, prompting concerns from investors on the economic impacts to inflation and growth. The actual impact of tariffs remains uncertain, particularly as Trump continues to add to the tariff pile, potentially sparking trade wars with unknown timing and outcomes.

Looking Ahead

The Consumer Turns Gloomy

The American consumer has endured a great deal over the past few years: higher interest rates, which have raised financing costs (including the cost of owning a home), as well as inflation, which has resulted in higher prices in almost every pocket of the economy. Despite these trends, the consumer has remained steadfast in their spending and stayed relatively positive about the state of the U.S. economy, but uncertainty related to both fiscal and monetary policy in 2025 is causing the consumer to re-evaluate everything. There are multiple surveys and indicators that measure consumer confidence and expectations, which can provide important insight into what consumers are thinking, which is ultimately what drives consumer behavior and subsequently market performance and economic growth

Exhibit 3: Consumer Inflation Expectations

Source: The University of Michigan

The latest Consumer Confidence Index reading came in below forecasts, registering the largest decline since 2021. Similarly, the University of Michigan’s survey of consumer inflation expectations signified heightened uncertainty surrounding future inflation, illustrated in Exhibit 3. The results of these two surveys indicate that consumers have become more pessimistic about the future economy, and this is likely driven by multiple factors, including stubborn inflation that is causing the Fed to keep interest rates at current levels, in addition to a high degree of uncertainty coming from the White House, with policies that could negatively impact both inflation and growth.

Additionally, the yield curve, which normalized in August 2024 after being inverted for over 2 years, re-inverted in the 10-year to 3-month portion of the curve on February 26. Yield curve inversions are a well-known recession indicator, and the latest inversion added fuel to the consumer-gloom-fire. While the latest consumer data is concerning, the danger with measuring expectations is that they can sometimes become a self-fulfilling prophecy. Today, history can provide an important lesson and perhaps a potential opportunity: when consumer confidence bottoms, positive equity market returns have typically followed, illustrated in Exhibit 4.

Exhibit 4: Consumer Confidence vs. S&P 500

Source: J.P. Morgan Guide to the Markets

Even when consumer sentiment is negative, it remains critical to stay invested in markets because exiting the market could mean missing out on potential strong equity returns, like what was witnessed after the 2022 equity market bottom. Whether the U.S. is headed for a recession will depend on macroeconomic variables like inflation, the labor market, and GDP growth, not the results of consumer surveys, even though they can provide insights. Despite what consumers may believe, the U.S. economy is still faring relatively well, and while that doesn’t mean there aren’t risks, monitoring the incoming data and staying diversified will remain critical in both the current and future environments.

The Bottom Line: The most recent readings of consumer surveys indicate growing pessimism about the future state of the U.S. economy, but investors should remember that markets are subject to extremes, and it is better to stay prudently invested during these times of uncertainty to avoid missing out on the positive equity returns that can follow.

Capital Markets Themes

What Worked, What Didn’t

•Values Bests Growth (Again): Growth stocks continue to struggle in 2025, as AI and Mag 7 darlings couldn’t keep pace with high market expectations, continuing to support the story of equity market breadth, or broader participation.

•Flight to Quality: Investment-grade bonds outperformed high-yield counterparts by about 130 bps over the month, emphasizing the importance of maintaining core exposure to bonds.

•Long Duration Looks Favorable: Longer-duration bonds performed well over the month, an important reminder that this positioning stands to benefit from an investor flight to safety and even interest rate cuts.

Large vs Small Cap Equity

Growth vs Value Equity

Developed vs Emerging Equity

Short vs Long Duration Bonds

Taxable vs Municipal Bonds

Investment Grade vs High Yield Bonds

Source: YCharts. Data call-out figures represent total monthly returns

On Alternatives

Private Versus Public Equities

Public equity valuations remain rich, with the S&P 500 trading at 21.2x forward earnings as of month-end, above both the 5- and 10-year averages of 19.8x and 18.3x, respectively. Looking under the hood, the top 10 stocks in the index have a combined price-to-earnings ratio of 26.7x. The current state of public equity markets highlights the need for diversification in other, more favorably valued markets.

Looking at the broad private equity asset class, valuations are certainly more favorable, trading in the 47th percentile versus the 96th percentile for the S&P 500, illustrated in Exhibit 5. Looking only at valuations, private equity appears to be the more attractive choice, particularly when considering the level of concentration in technology stocks in public markets today. However, just as investors want to diversify concentration risk in the public tech sector, private equity markets are also dealing with their own concentration struggles as it relates to the limited partner (LP) secondary market.

The secondary market facilitates the trading of stakes in private equity funds by LPs, or investors, in those funds. This market has witnessed a surge in demand, resulting in higher, and, in many cases, less favorable pricing, with all secondary-focused funds trading at 88% of net asset value as of the most recent data, illustrated in Exhibit 6.

Exhibit 5: Equity Valuation Percentiles

Source: Bow River Capital

This supply/demand imbalance in the secondary market is a direct result of the slow exit environment seen in recent years, which has forced LPs to source liquidity in other parts of the market, like secondaries, often at a discount. General partner (GP)-led secondary funds have also seen increased interest, illustrated by record fundraising for private equity behemoths Ardian and Lexington, who raised a combined $51 billion last year. This surge in fundraising has added to demand pressures in the secondary space, making the asset class less attractive than other parts of private equity.

On the macro front, elevated interest rates are not helping the current situation, but Trump’s potential deregulation policies could incentivize activity in the initial public offering (IPO) market, which may help accelerate exits and bring much-needed supply to the private equity market. Investors don’t want to wait indefinitely for interest rates to drop or for a more favorable regulatory environment, and while parts of both public and private equity markets are overvalued today, opportunities still exist.

When valuations are high and activity is concentrated in one sector of the market, selectivity and quality become even more important, as does managing concentration risks—regardless of whether an investor is looking at private or public markets.

Exhibit 6: LP Secondary Portfolio Pricing

Source: J.P. Morgan Guide to Alternatives

The Bottom Line: Whether investors are looking at public or private markets, valuations and concentrations remain a critical determinant in the investment decision-making process, with caution warranted in the overvalued parts of any market, like tech in public equity and secondaries in private equity markets today.

Asset Class Performance Quilt

Markets are ever-changing, making diversification across asset classes and sectors a critical component of portfolio construction. As illustrated below, a Balanced 60/40 portfolio provides greater consistency of returns and less volatility over time.

Source: YCharts. Asset class performance is presented using market returns from an exchange-traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by Centura Wealth Advisory. The performance of those funds may be substantially different than the performance of broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High Yield Bonds (iShares iBoxx $ High Yield Corp Bond ETF); Intl Bonds (Invesco International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI ACWI ex US ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “60/40 Allocation” is a weighted average of the ETF proxies shown as represented by: 40% U.S. Bonds, 12% International Stock, and 48% Large Blend.

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Ep. 106 The Power of Strategic Financial Planning

The Power of Strategic Financial Planning

Success in financial planning isn’t just about making money—it’s about making the right decisions at the right time. As wealth grows, so does the complexity of managing it effectively. That’s why high-achieving professionals and business owners must level up their financial strategy and assemble the right advisory team.

In this episode of the Live Life Liberated podcast, Samantha Lawrence speaks with Kyle Whissel, owner of Whissel Realty, about his journey from foundational financial planning to implementing advanced wealth strategies. With a rapidly growing business and increasing tax liabilities, Kyle shares how Centura Wealth Advisory has been instrumental in helping him optimize his wealth, minimize taxes, and build a top-tier financial team.

Key Takeaways

1. The Importance of Upgrading Your Financial Team

As income increases, financial needs evolve. What worked in the early stages of building wealth may not be effective for managing multi-seven-figure earnings. Kyle explains how upgrading his advisory team was a critical step in optimizing his financial future.

“The team that got you here won’t necessarily get you there. You have to recognize when it’s time to level up and bring in experts who can handle the complexities of growing wealth.” – Kyle Whissel

2. Creating Synergy Among Advisors

Having a financial team isn’t enough—it’s about ensuring all advisors are aligned. Too often, professionals work in silos, leading to inefficiencies and missed opportunities. Kyle shares how a coordinated team approach has improved his financial decision-making.

“If your CPA and wealth advisor aren’t on the same page, you can’t execute strategies effectively. Making sure your team is in alignment is essential.” – Kyle Whissel

3. Leveraging Advanced Tax Strategies

As tax bills increase, high-income individuals must shift from basic tax-saving methods to advanced strategies such as:

  • Defined Benefit Plans – Maximizing pre-tax contributions
  • Charitable Lead Trusts (CLTs) – Combining philanthropy with tax efficiency
  • Cost Segregation Studies – Optimizing depreciation for real estate investors

By implementing these strategies, Kyle has significantly reduced his tax burden while reinvesting in his business and personal financial goals.

4. Flexibility in Financial Planning

Income levels fluctuate, especially for business owners. Establishing flexible financial strategies allows for adjustments based on profitability each year. Kyle highlights how Centura Wealth Advisory has helped him fine-tune his approach to balance reinvestment and tax savings.

“Not all businesses have linear income growth. Having the ability to pull different financial levers each year gives us the flexibility we need.” – Kyle Whissel

5. Structuring Investments for Long-Term Growth

As Kyle has expanded his business ventures—including real estate development—working with Centura has provided him with critical insights into structuring investments, evaluating risks, and attracting investors.

“Centura helps me poke holes in investment opportunities, making sure we’re structuring deals the right way before presenting them to investors.” – Kyle Whissel

Final Thoughts

Financial success isn’t just about earning more—it’s about being proactive, strategic, and surrounding yourself with the right team. Whether it’s reducing taxes, optimizing investments, or ensuring alignment across advisors, strategic financial planning plays a crucial role in long-term wealth preservation and growth.

For more insights, connect with Centura Wealth Advisory at centurawealth.com.

Disclaimer

The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Centura Wealth Advisory. The content has been made available for informational and educational purposes only. The content is not intended to be a substitute for professional investing advice. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.Centura Wealth Advisory (Centura) is an SEC-registered investment advisor with its principal place of business in San Diego, California. Centura and its representatives are in compliance with the current registration and notice filing requirements imposed on SEC-registered investment advisors in which Centura maintains clients. Centura may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Past performance is no guarantee of future results. Tax relief varies based on client circumstances, and all clients do not achieve the same results.

exit planning

The Importance of Early Valuation for a Tax-Savvy Business Exit

When business owners decide it’s time to exit, whether through selling the company, merging with another entity, or transferring ownership, many of them focus primarily on maximizing the financial return. 

However, a well-planned exit strategy goes beyond simply receiving the best price—it requires careful consideration of the tax implications. One of the most effective ways to ensure a tax-savvy exit is to conduct an early business valuation. 

In this blog, we’ll explore why early valuation is so important in crafting a tax-efficient business exit plan and how business owners can benefit from it.

What Is Business Valuation?

Business valuation is the process of determining the worth of a company. This can be done through a variety of methods, including comparing the business to similar companies, analyzing earnings, assessing assets, or using more complex financial modeling techniques. A valuation helps business owners understand their company’s true value, providing the information needed to make informed decisions about selling, succession planning, or other exit strategies.

Early business valuation means conducting this process well before the planned exit. This timing gives the business owner the opportunity to address any issues that may arise and to make adjustments to enhance both the business’s value and tax efficiency. By engaging in early valuation, a business owner is better positioned to maximize their net proceeds and minimize the tax impact of the transaction.

The Tax Impact of Exiting a Business

Understanding the tax impact of exiting a business is essential for owners to secure a substantial net gain. The IRS and state tax agencies impose various taxes on business transactions, and these taxes can significantly reduce the amount an owner walks away with. For example, when selling a business, the owner may be subject to:

  • Capital Gains Tax: This tax applies to the profit made from selling an asset, such as a business. The rate varies depending on how long the business owner has held the company. For businesses held for more than a year, the long-term capital gains tax rate applies, which is generally lower than short-term rates.
  • Ordinary Income Tax: In some cases, parts of the sale may be taxed as ordinary income, depending on how the sale is structured. For instance, the sale of inventory, accounts receivable, and other current assets could result in ordinary income tax rates applying to the proceeds.
  • Self-Employment Taxes: If the business owner is also an employee of the company, they may owe self-employment taxes on a portion of their income during the exit process.

Beyond these federal taxes, business owners may face state and local taxes as well. Each state has different tax laws governing business sales, so understanding the regional tax environment is key to structuring an effective exit strategy.

How Early Valuation Helps with Tax Planning

By conducting a business valuation well in advance of an exit, business owners can take proactive steps to reduce their tax liability. Here’s how early valuation contributes to tax-savvy exit planning:

1. Identifying the Optimal Exit Timing

A business valuation conducted early allows owners to examine the current market conditions and the financial health of their company. They can assess whether it’s a good time to sell or if waiting for a few more years could yield a higher valuation and, therefore, better returns. Sometimes, business owners may find that their company is not as valuable as they initially thought, and they may choose to implement strategies to increase its value before an exit.

Additionally, a valuation helps owners better understand when they’ll hit certain tax thresholds. For example, if an owner’s business has grown significantly in value over a short period, they may want to consider selling sooner to benefit from long-term capital gains tax rates.

2. Identifying and Addressing Potential Tax Traps

Some parts of a business may have hidden tax implications that the owner may not immediately recognize. An early valuation can reveal potential areas that could be taxed at higher rates, such as depreciation recapture or ordinary income tax on the sale of certain assets. By identifying these areas ahead of time, a business owner can take steps to minimize these tax burdens by either restructuring the business, selling certain assets separately, or waiting until specific tax benefits apply.

For instance, an early valuation might uncover significant depreciation that could lead to depreciation recapture, a situation where the IRS taxes some of the sale proceeds at ordinary income tax rates. Addressing these issues early allows owners to plan their exit more efficiently, potentially delaying or mitigating the impact of this tax.

3. Structuring the Sale to Minimize Taxes

Once a business valuation has been completed, business owners and their advisors can work together to structure the sale in the most tax-efficient manner possible. For example, a tax-savvy business exit strategy might involve selling the business in a way that triggers long-term capital gains rather than ordinary income. It may also involve structuring the transaction as a stock sale or an asset sale, each of which has different tax consequences.

In some cases, a business owner may want to explore tax-deferral options, such as selling to an employee stock ownership plan (ESOP) or utilizing tax-advantaged methods like Section 1031 exchanges for certain types of real estate.

4. Preparing for the Estate Tax Impact

In addition to the immediate tax consequences of a business sale, there may also be estate tax implications to consider. If a business owner plans to pass on the business or its proceeds to heirs, early valuation helps to determine if their estate will be subject to estate taxes upon their death. An early valuation can help business owners establish a clear plan for transferring ownership or assets to heirs in a tax-efficient manner. This might involve gifting shares, setting up trusts, or utilizing other wealth transfer strategies.

By understanding the potential estate tax impact, business owners can better prepare for the future, minimizing the tax burden for their beneficiaries and ensuring a smooth transition.

Benefits of Early Valuation Beyond Taxes

While early valuation is critical for tax planning, it offers several other benefits that contribute to a successful business exit strategy.

  • Understanding Business Weaknesses: Early valuation helps business owners identify areas that need improvement, whether it’s the company’s financials, operations, or management team. By addressing these weaknesses early, owners can increase the business’s overall value.
  • Enhanced Negotiation Leverage: A comprehensive business valuation gives the owner a solid foundation for negotiating with potential buyers or investors. By having a clear understanding of the company’s value, business owners are in a better position to negotiate favorable terms that align with their financial goals.
  • Business Readiness: Early valuation serves as a checkup for the business, ensuring that everything is in place for a successful transition. It helps owners prepare for potential buyers by addressing legal, financial, and operational issues before putting the business on the market.

Final Notes

For business owners looking to exit their companies, early business valuation is an essential part of crafting a tax-savvy exit strategy. By conducting a valuation well before the sale, owners can understand their company’s worth, optimize the timing of the exit, and identify ways to minimize tax liability. They can also prepare for future estate taxes, increase the business’s value, and negotiate more favorable terms. With proper planning and expert guidance, an early valuation helps business owners make smarter decisions that lead to a successful and financially rewarding exit.

If you’re considering exiting your business, now is the time to get started on your business valuation. By working with experienced advisors, you can ensure that you’re prepared for both the financial and tax aspects of the process, maximizing your exit strategy and preserving your wealth for the future.

Interested in learning more? Check out our Guide to Selling Your Business: Navigating Taxes and What to do Next, here.

Selling Your Business?

Centura Wealth can help you navigate the process with ease. Learn how to prepare to sell your business here.

Disclosures

Centura Wealth does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein.  All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice.  We recommend that you seek the advice of a qualified attorney and accountant.

For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).  Please read the disclosure statement carefully before you engage our firm for advisory services.

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Market Month in Review – January 2025

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At a Glance

Macro Indicators: Headline and core PCE inflation increased 2.6% and 2.8%, respectively, in December 2024. The increases were in line with expectations but strengthen concerns that inflation will remain sticky. The December jobs report showed continued strength in the labor market, with jobs added exceeding expectations by over 100,000. The unemployment rate fell slightly from the prior month from 4.2% to 4.1%. After expanding 2.3% in 4Q, GDP grew 2.8% in 2024, signaling a relatively strong economy despite higher interest rates. Trump & Geopolitics: As of month-end, tariffs are expected to be levied on Mexico, Canada, and China, fueling the start of a potential trade war with uncertain impacts.

Trump & Geopolitics: As of month-end, tariffs are expected to be levied on Mexico, Canada, and China, fueling the start of a potential trade war with uncertain impacts.

Fed & Monetary Policy: After cutting 100 bps between September and December 2024, the Fed held rates steady at their January Federal Open Markets Committee (FOMC) meeting, reiterating their “higher for longer” narrative and dependency on macro data like inflation and jobs.

Equity Markets: Tech stocks witnessed volatility in January with the publication of a report from DeepSeek, an emerging artificial intelligence (AI) technology out of China. Key players, like Nvidia, lost more than 17% from the report, an important reminder that competition will be rampant as companies look to develop and incorporate AI, making portfolio diversification imperative to help protect against potential downside risks.

Asset Class Performance

Despite volatility surrounding President Trump’s return to office in January, positive monthly returns were posted across all asset classes with the largest gains coming from equity markets. Developed international performed the best over the month largely due to strong company fundamentals, and U.S. markets were up over 2.5% across both large and small-cap stocks.

Source: YCharts. Asset class performance is presented using total returns for an index proxy that best represents the respective broad asset class. U.S. Bonds (Bloomberg U.S. Aggregate Bond TR), U.S. High Yield (Bloomberg U.S. Corporate High Yield TR), International Bonds (Bloomberg Global Aggregate ex-USD TR), U.S. Large Cap (S&P 500 TR), U.S. Small Cap (Russell 2000 TR), Developed International (MSCI ACWI ex US TR), Emerging Markets (MSCI EM TR), and Real Estate (Dow Jones U.S. Real Estate TR).

Markets & Macroeconomics

Data Dependency Strikes Again

In the current environment, the Fed continues to reiterate its “data dependent” mode, with their January Federal Open Markets Committee (FOMC) statement expressing, “the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks” in determining the future path of monetary policy. The Fed is expected to keep interest rates at current levels until a catalyst emerges to support lower rates, which will likely come from inflation, the labor market, or GDP. Inflation data, including both PCE and CPI, increased relatively in line with market expectations in December 2024 but remains elevated above the Fed’s 2% inflation target. Core PCE, which excludes more volatile food and energy costs, increased 2.8% in December 2024 on a year-over-year basis, the third month in a row it has logged a 2.8% growth rate. Certainly, the “last mile of inflation” is proving difficult, supporting the Fed’s decision to hold interest rates steady.

This stickiness has ignited concerns that market inflation expectations are being re-anchored to a higher level long-term, which is illustrated by the rise in the 10-year Treasury yield, which partially reflects inflation expectations (among many other factors) and reached 4.8% earlier this month after falling back down to 4.5% by month-end, depicted in Exhibit 1. The Fed’s decision-making is also highly dependent on the health of the labor market, which remains strong. While this is a good thing, the market interprets this as bad news because it does not justify lower interest rates and ultimately keeps the Fed on pause.

Exhibit 1: 10-Year Treasury Yield

Source: YCharts

The Fed remains hyper-focused on the impact of inflation and the labor market on the U.S. economy, and, in turn, markets remain dependent on the Fed and its actions (or inactions) with interest rates. Complicating matters today, data dependencies have also arisen from the onslaught of data and news coming out of the White House, as well as data in equity markets related to earnings or market reports. On the latter, we recently witnessed the vulnerability of major U.S. indices, particularly the tech-heavy Nasdaq-100, when a report was published on a new artificial intelligence (AI) technology out of China, called DeepSeek, a competitor to AI giants in the U.S., like OpenAI, the creator of ChatGPT. The report, which was published on January 27, reverberated through markets, sending the Mag 7 darling and chipmaker, Nvidia, to close down nearly 17%, illustrated in Exhibit 2, resulting in nearly $600 billion of market cap lost – the largest single-day loss ever – due to the report’s claim that DeepSeek cost a fraction to build versus U.S. models, potentially threatening the future profitability of a chipmaker like Nvidia. The lesson learned from the DeepSeek drama is that competition will be rampant in the AI space, and this competition will continue to disrupt equity market performance as winners and losers are identified in the AI arms race, making diversification away from tech concentrations an important theme in 2025.

Exhibit 2: Impact of DeepSeek Report

Source: YCharts

The Bottom Line: Markets today are highly dependent on data, whether it be from the Fed, macroeconomic indicators, the White House, or the latest in AI technologies. These dependencies create hyper-sensitive markets prone to volatility, which is expected to be a continuing theme in 2025

Looking Ahead

Trump 2.0 – Tariffs, Tax Policy & Uncertainty

As Trump entered office on January 20, he signed 24 executive orders, the most any President has signed on their first day in office, illustrated in Exhibit 3, setting an important precedent that he intends to fiercely pursue his policy agenda. Despite Republicans holding a slim majority in the House and Senate, Trump’s aggressive policies will likely face opposition, making the overall success of his agenda uncertain. As his policies take shape over the coming weeks and months, investors should stay informed and cautious about making portfolio changes based on speculation or promises made by the government, focusing instead on the known facts.

Exhibit 3: Executive Orders Signed First Day

Source: Federal Register

What we do know is that Trump is proposing a comprehensive swath of changes, spanning stricter controls on immigration and border protection, greater government efficiency including the reduction of the federal workforce, tax policy reform and likely tax cuts, broader as well as tactical tariffs, expansion of cryptocurrency markets, and even more esoteric changes, like the renaming of landmarks, including the Gulf of Mexico, just to name a few. Clarity will emerge as his policies take physical shape, but, in the interim, there is much consternation in the investing community about the impact of some of these policies on federal finances, as well as on growth in the U.S. economy, which has already had to withstand years of restrictive monetary policy. One of the more significant pieces of legislation up for debate this year is the sunsetting of Trump’s 2017 Tax Cuts and Jobs Act (TCJA), which was passed during his first term and is set to expire at the end of 2025. There is a high probability that Trump will extend or even expand the TCJA, broadly reducing taxes and simultaneously putting further pressure on federal finances, which the Congressional Budget Office (CBO) has estimated would cost at least $4.6 trillion over the next 10 years. A ballooning federal debt could put strain on the demand for U.S. Treasuries, while changes to U.S. tax policy, particularly as it relates to alternative minimum tax (AMT) exemptions and the state and local tax (SALT) caps, could have implications for the municipal market.

Trump is hoping to fund part of these tax cuts through tariffs, which do not require congressional approval under the “national emergency” Trump is claiming for tariff enforcement. As of month-end, Trump was threatening tariffs on imports from key trading partners Canada, Mexico, and China, illustrated in Exhibit 4, who in turn, promised retaliation, introducing concrete concerns about a re-acceleration in inflation and even stagflation, which could trouble the Fed in their plight to reduce interest rates. As negotiations play out in the coming weeks, we could see changes to these initial tariffs and ensuing volatility in equity markets. The TCJA and tariffs are textbook examples of uncertainty surrounding Trump’s fiscal agenda. There are countless ways these policies could take shape with potential implications on federal finances, U.S. growth, inflation, labor market health, and both equity and bond markets that are difficult to predict, making uncertainty almost a guarantee.

Exhibit 4: U.S. Key Trading Partners

Source: Council on Foreign Relation

The Bottom Line: Trump is pursuing his policy agenda aggressively, focusing first on tariffs and tax policy. Investors should expect uncertain and likely volatile conditions in the weeks and months ahead and should remain cautious about making portfolio changes amidst this uncertainty.

Capital Markets Themes

What Worked, What Didn’t

•Values Bests Growth: After a volatile month for growth and tech stocks, fueled primarily by the DeepSeek drama that routed artificial intelligence-based companies, value stocks outperformed growth by nearly 250 bps in January, supporting the story of equity market breadth.

•Invest in Bonds for Income: Taxable and municipal bonds performed roughly in-line with one another in January, returning 50 bps for the month, but municipal markets continue to provide attractive tax equivalent yields for investors, particularly in the high yield muni sector, emphasizing the benefit of income when investing in bond markets.

Large vs Small Cap Equity

Growth vs Value Equity

Developed vs Emerging Equity

Short vs Long Duration Bonds

Taxable vs Municipal Bonds

Investment Grade vs High Yield Bonds

Source: YCharts. Data call-out figures represent total monthly returns

On Alternatives

2025 Outlook for Private Markets

Private Equity – After a slow exit environment in recent years, the tide may be changing for the initial public offering (IPO) market in 2025. With a new political regime and the Fed cutting interest rates by 100-bps late last year, optimism is rebounding for the ability of firms to sell portfolio companies at more attractive valuations; however, expectations for further cuts this year are uncertain given the Fed’s “higher for longer” stance. Private equity is also sitting on high levels of dry powder – assets raised for investments but not yet deployed – strengthening the potential for a boost in deal flow activity in 2025, illustrated in purple in Exhibit 5, particularly against Trump’s “deregulation” backdrop.

Exhibit 5: Alternatives Dry Powder

Source: Preqin, J.P. Morgan Asset Management. Data as of 11/30/2024.

Private Credit – The private credit asset class has seen more inflows in recent years than any other private market, largely due to its consistent return profile, high level of income production, and resilience against market volatility. This market-wide migration, however, caused spreads in the private credit market to compress, making the opportunity set potentially less appealing in the current environment, particularly as the Fed has cut rates 100-bps. Interest rates also play a critical role in the private credit market, and rates staying “higher for longer” could continue to put pressure on borrowers, testing the resilience of the asset class to deliver income during times of uncertainty, making the focus on high-quality lenders critical to success in 2025.

Private Real Estate – Interest rate volatility witnessed in the 10-Year Treasury yield in recent months has created a difficult environment for operators and valuations in the real estate market, a trend that is likely to continue in 2025 with a confluence of factors affecting the Treasury market. Zeroing in on multifamily real estate, perhaps the most significant factor affecting this sector in 2025 is the number of deliveries, a measurement of supply, falling off a cliff, as illustrated in Exhibit 6. Deliveries represent the completion of a property and lag starts, which have already seen a precipitous decline, meaning that 2025 could bring limited supply, which should help fuel rental demand and lead to robust rent growth in the multifamily sector this year and beyond.

Exhibit 6: Multifamily Real Estate Supply

Source: CoStar, J.P. Morgan Asset Management. Data as of 11/30/2024.

The Bottom Line: The 2025 outlook for private investments remains solid but is largely dependent on the direction of interest rates, which, of course, is dependent on the U.S. macroeconomic picture. Amidst this uncertainty in the macro environment, a focus on quality and diversification across private investments remains crucial to defend against potential downside risks.

Asset Class Performance Quilt

Markets are ever-changing, making diversification across asset classes and sectors a critical component to portfolio construction. As illustrated below, a Balanced 60/40 portfolio provides greater consistency of returns and less volatility over time.

Source: YCharts. Asset class performance is presented using market returns from an exchange-traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by Centura Wealth Advisory. The performance of those funds may be substantially different than the performance of broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High Yield Bonds (iShares iBoxx $ High Yield Corp Bond ETF); Intl Bonds (Invesco International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI ACWI ex US ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “60/40 Allocation” is a weighted average of the ETF proxies shown as represented by: 40% U.S. Bonds, 12% International Stock, and 48% Large Blend.

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Q4 2024 Market Wrap: Is a Bear or Stock Market Three-Peat Coming in 2025?

Global markets saw significant developments in the fourth quarter of 2024, concluding a year marked by economic shifts, policy changes, and geopolitical events. The S&P 500 achieved 57 new all-time highs, delivering a remarkable annual gain of 25% and marking its strongest back-to-back performance since 1997/1998. In the fourth quarter, the “Trump Trade” returned in full force following the November election results, significantly influencing market dynamics and delivering the strongest monthly performance of the year.

With Donald Trump securing another term as President, market participants quickly shifted their strategies to align with expected policy changes, including key proposed initiatives like deregulation, international trade, and lower taxes. As investors anticipated a favorable environment for corporate profits, U.S. equity markets, particularly those sectors with high exposure to domestic economic activity, benefited immensely. Focus on the “Trump Trade” also fostered renewed optimism in venture capital and the small-cap sector, which gained from speculation that domestic-focused companies would be prime beneficiaries under Trump’s administration. Below are highlights from the fourth quarter and year:

  1. The S&P 500 and NASDAQ 100 both rallied +25% through year-end despite geopolitical headwinds, economic challenges, and the final five trading days of the year failing to materialize a Santa Claus Rally. Their strong performance was aided by the tech sector, which benefitted from the AI boom and contributed significantly to their growth. Magnificent Seven giants like Nvidia (NVDA), Meta (META), and Tesla (TSLA) propelled the indexes to new heights as these companies harnessed the transformative potential of AI and similar technologies, capturing investor interest and driving substantial returns.
  2. The Magnificent Seven, comprising the seven largest technology stocks (Apple, Amazon, Alphabet, Microsoft, Meta Platforms, Nvidia, and Tesla), make up approximately 35% of the S&P 500 and nearly 50% of the NASDAQ. Investors fueled inflows into the stocks given their expanding service segments and innovative product lines, which resonated well with consumers worldwide. Given their size and profitability, investors believe that the Magnificent 7 companies’ scale and financial flexibility best position these companies to capitalize on artificial intelligence. While there has been some rotation out of the Magnificent Seven, given their exorbitant valuations, their complex interplay of innovation, market leadership, and strategic expansions contributed 55% of the S&P 500’s gains for 2024, with Nvidia alone producing 21% of the index’s return. Leveraging their financial flexibility and technological prowess, these companies positioned themselves at the forefront of market trends, setting the tone for technology-driven growth as we transition into 2025.
  3. Cryptocurrency, once considered a high-risk investment, is gaining greater acceptance among retail and, importantly, institutional investors. Bitcoin (BTC-USD) surged to an all-time high of $108,369 in December, pushing the global crypto market’s value over $3T for the first time in three years, as BlackRock, the world’s largest asset manager, stated that a Bitcoin allocation of up to 2% in portfolios is “reasonable.” The shifting regulatory environment with Trump’s victory further aided the advance of cryptocurrency. While Bitcoin contracted from its peak to close the year, as digital assets grow and regulatory acceptance increases, many investors may seek an opportunity to capitalize.
  4. Bloomberg Barclays U.S. Aggregate Bond Index experienced a rollercoaster year, though it turned into a positive year for the second in a row. Driven by growth prospects, inflation, and monetary policy projections, the 10-Year Treasury entered 2024 at 3.88%, only to rise and peak at 4.70% before collapsing to 3.63%. As growth improved and the “Trump Trade” took hold, rates reversed sharply to end the year at 5.58%. Despite the yield rising 0.77% in 2024; the bond index eked out a positive 1.25% return.
  5. Geopolitical Tensions and Volatility further supported the case for U.S. equities and pushed valuations higher. Tensions in the Middle East and Russia-Ukraine continued to escalate, as did tensions between China and Taiwan. Additionally, South Korea finds itself in the middle of a political crisis after their now impeached president briefly declared martial law, and both France and Germany saw their governments collapse in December, fueling geopolitical concerns.
  6. Gold Bullion returned the best year since 2010 with gains of +27%. Strong global central bank purchases, rising geopolitical uncertainties, and monetary policy easing all propelled the safe-haven asset’s record-breaking rally near an all-time high of $2,790.15 on Halloween. While the surging U.S. Dollar took some of the air out of gold’s sail, the same catalysts that pushed gold higher in 2024 remain, potentially supporting further gains in 2025.
  7. U.S. Dollar strengthens nearly 8%, the most since 2015 as solid U.S. economic growth, sticky inflation, and Donald Trump’s potential fiscal policy initiatives signal rates will likely remain elevated.
Source Link: Bloomberg

Market Recap 

Equities – U.S. stocks continued their impressive run through Q4, building on gains from earlier in the year. The technology sector remained a key driver of market performance, buoyed by an ongoing enthusiasm for artificial intelligence and other emerging technologies. Nvidia (NVDA) continued its meteoric rise, solidifying its position as one of the world’s most valuable companies. The S&P 500 rose 2.41% for the quarter, bringing its year-to-date return to an impressive 25%.
      
Bonds – The bond market experienced significant volatility in Q4, largely driven by shifting expectations for the economy, hypothetical fiscal policy, Fed policy, and inflation. Entering the quarter at 3.81%, the 10-Year Treasury yield rose sharply over the course of 2024’s final months to end the year at 4.58%. Robust economic growth paired with a slower pace of Fed rate cuts and the prospects of pro-inflation fiscal policy initiatives caused the market to reassess both long-term growth and inflation expectations higher, lifting long-term bond yields. With the upward move in yields, the Bloomberg U.S. Aggregate Bond Index fell 3.06% in Q4, erasing earlier gains, though it still produced a positive calendar year, closing 2024 up 1.25%.

 Source: YCharts. The Bloomberg US Aggregate Index was used as a proxy for Bonds; the Bloomberg US High Yield 2% Issuer Capped Index was used as a proxy for High Yield Bonds; the Russell 2000 Index was used as a proxy for Small Cap Equities; and the MSCI ACWI Ex USA Index was used as a proxy for Foreign Equities.  All returns are based on total return levels as of 12/31/2024.

Economy: Robust Consumer Spending in 2024 

Consumption has remained one of the biggest drivers for the U.S. economy, whose real GDP is on track to expand more than 3% in Q4 2024. The consumer discretionary sector was the top-performing sector in December and one of the top sectors in 2024. Major retailers and discretionary companies capitalized on this year’s seasonal surge in holiday sales, which saw record-breaking transactions amid consumers’ willingness to stretch budgets for year-end gifting.

Source Link: JPM Asset Management Guide to the Markets

Despite the optimistic consumption data, businesses remain cautious and keenly aware of the potential risks posed by fluctuating consumer sentiment and the specter of inflationary pressures lingering from policy shifts both domestically and globally.

During Q4 2024, consumer spending remained a pivotal component of the economic landscape, although it exhibited signs of moderation. Robust consumer activity, invigorated by wage growth and stronger purchasing power than previous years, continued to support the broader economy. Despite elevated borrowing costs, consumers showcased resilience, navigating a complex environment marked by geopolitical tensions and evolving fiscal policies. The U.S. economy continued to demonstrate resilience in Q4. According to the Atlanta Fed’s GDPNow model, as of Christmas Eve, Q4 growth is estimated at 3.1%, reflecting a continuation of the robust 3.1% expansion seen in Q3. This growth aligns with the Federal Reserve’s efforts to reach a “soft landing” and avoid recession while combating inflation.

Source Link: Atlanta Fed GDPNow

Consumer spending is a bellwether for economic growth, but it also faces notable headwinds, most notably the rising levels of household debt. U.S. credit card defaults jumped to the highest level since 2010 as credit card lenders wrote off $46 billion in seriously delinquent loans through September (50% year-over-year increase); a sign that the financial well-being of lower-income consumers is waning after years of high inflation. Trump’s planned fiscal policy changes also have the potential to further erode consumers’ purchasing power, particularly if his policies lead to a resurgence in inflation.

Labor Market Dynamics

As one of the dual mandates of the Fed, the labor market remains a focal point of economic analysis. Marred by two hurricanes and a Boeing strike, October’s labor gains were anemic. Meanwhile, 227,000 jobs were added in November, beating expectations, as the unemployment rate inched up to 4.2%, which represents a 0.5% increase in unemployment from 3.7% to start the year.

Source Link: Atlanta Fed GDPNow

Higher unemployment figures and reduced job openings tested the labor market’s resilience, with October job openings (JOLTs) around eight million, a palpable decline from nearly nine million openings in January 2024. Another signal of labor market softening is the ratio of job openings to those unemployed, which moved down over the year to 1.08:1. While the ratio of 1.08:1 is near historical levels, the ratio has fallen significantly from nearly two job openings for every job posting in 2022, indicating the labor market is showing signs of tightening.

As the number of open jobs trended lower, the number of unemployed job seekers trended higher, as evidenced by the more than one million additional unemployed persons from January through November. The current levels show signs of tightening, reflecting a labor market that remains healthy but is gradually moderating after an extended period of strength. More concerning is the reversal witnessed in wage growth. After bottoming in June at 3.83%, wage inflation has risen back above the critical 4% threshold. Robust wage gains have bolstered consumer spending but have also heightened the risk of reigniting inflation. Heading into 2025, the job market will serve as a key indicator of economic stability, with any significant downturn threatening consumer spending and overall economic growth, and also prompting potential shifts in monetary policy.

Inflation and Monetary Policy

Inflation trends remained a central focus for markets and policymakers. After showing signs of moderation in early 2024, inflation has remained sticky, with measures ticking up slightly in the latter part of Q4. The headline Consumer Price Index (CPI) edged higher to 2.7% year-over-year in November, while core CPI (excluding food and energy) held steady at 3.2%. In line with CPI, the Fed’s preferred inflation gauge ran into the proverbial wall mid-year and has proven stubborn during this last mile of contraction as the Core Personal Consumption Expenditures (PCE) price index has risen from 2.6% in June to 2.8% in November. While significantly lower than the peaks seen in 2023, these figures remain above the Federal Reserve’s 2% target.

Following their surprisingly aggressive 50 basis point rate cut in September, the Federal Reserve reduced interest rates by another 50 basis points in the fourth quarter, bringing the interest rate cut total to 100 bps for 2024. December’s meeting also provided insight into the Fed’s outlook for 2025 and beyond. The Fed’s updated Statement of Economic Projections showed a slower pace of rate reductions in 2025 than previously projected in September, cutting projections in half from 100 basis points of cuts, to 50 basis points, or two potential 25 basis point cuts in 2025. This deviation sent long-term bond yields surging and prompted a risk-off mentality as investors started repricing a “higher-for-longer” outlook, causing a sell-off in interest rate-sensitive small-cap and technology stocks. With persistent inflation, wage growth elevated, and Trump set to take office, we anticipate the Fed to adopt a patient and methodical approach to future rate reductions.

Source Link: Fed’s Statement of Economic Projections

Centura’s Outlook

We believe the Fed will ultimately deliver on their goal to lower inflation to its 2% mandate and avoid a recession for the U.S. economy. However, the Fed will need to monitor the state of the labor market deterioration and reversal of inflation closely if they are to fully avoid an economic contraction and achieve their inflation target. Successfully delivering lower inflation and monetary policy normalization should bode well for equities and bonds. As always, there are several potential risks looming, and investors should proceed carefully.

By most measures, the S&P 500 remains overvalued. According to FactSet, as of December 15, the forward 12-month Price-to-Earnings Ratio (P/E) was 22.3x, which is higher than both the 5-year and 10-year averages of 19.7x and 18.1x, respectively. Valuations continue to pose a risk to the market, as negative sentiment can lead to sharper sell-offs. Furthermore, the concentration of the Top 10 largest stocks in the S&P 500 poses a significant concentration risk. According to JPMorgan Asset Management, the 10 largest constituents represent 38.7% of the index as of December 31. Concentrations of this magnitude make the index more sensitive to changes in its top constituents, particularly when those 10 companies are significantly more overvalued than the remaining 490 companies, as is the case in the current environment. The P/E of the top 10 is currently 29.8x, while the remaining stocks currently boast a P/E of only 18.2x, both of which are above their historical averages. Concentrations like this are precisely why we favor global diversification across several asset classes, both public and private. This high level of concentration also supported our decision to reduce overall large-cap exposure, particularly to large-cap technology stocks, in our public model allocations as we enter the new year.

Source: JPM Asset Management Guide to the Markets

Looking under the hood of public markets, corporate profits remain resilient despite elevated borrowing costs. This trend is illustrated by the S&P 500’s fifth consecutive quarter of positive earnings growth, rising 5.9% in Q3 2024. As of December 20, FactSet estimates fourth-quarter earnings to expand at a faster pace of 11.9% year-over-year.

Since 2023, the Magnificent Seven has been responsible for most of the market’s earnings growth, increasing 31%, versus the -4% contraction of the remaining 493 companies’ earnings in the S&P 500 last year. This trend is expected to persist in 2024, but we remain optimistic as JPMorgan predicts the remaining companies outside the Magnificent Seven to catch up and accelerate earnings growth in the forward-looking environment. Both groups are expected to experience robust year-over-year earnings growth of 21% and 13%, respectively, in 2025. A broadening of earnings growth should bode well for increased market breadth and carve a path for higher broad-based returns for equities outside the Magnificent Seven.

Source: JPM Asset Management Guide to the Markets

Perhaps even more encouraging is the rebound and contribution to earnings growth expected from both mid- and small-cap companies. While elevated rates will continue to cause issues for some smaller companies, earnings for small caps are expected to grow 44% in 2025. When coupled with easing monetary policy, potentially pro-business fiscal policies like deregulation, international trade, and lower tax rates, the backdrop appears encouraging for mid- and small-cap companies; hence supporting our decision to eliminate our underweight and increase exposure in our allocations to align with our long-term target allocations.

Source: JPM Asset Management Guide to the Markets

From the political crisis in South Korea, to the government collapses in France and Germany, to the armed conflicts, notably in the Middle East, where tensions between Israel and Iran escalated, and in Russia-Ukraine, and the threat of intensifying conflicts between China and Taiwan – international markets are on fragile ground. As these international disputes unfold, they have a cascading effect on market sentiment, influencing everything from currency valuations to sector performance. The specter of further geopolitical instability remains a crucial factor to monitor in the upcoming year, with potential policy responses from global leaders poised to have far-reaching consequences for economic forecasts and asset allocations worldwide. One of the most significant economic initiatives anticipated in 2025 is the resurgence of tariffs under President Trump’s administration. Known for a protectionist stance, Trump’s economic strategy could reignite trade tensions globally as the administration revisits import tariffs with the goal of reshoring jobs and boosting domestic manufacturing. This strategy is expected to lead to a more protectionist trade policy, potentially affecting global trade dynamics and introducing volatility into markets sensitive to international trade. Given the disruption abroad, paired with a strengthening dollar, we further reduced our allocations to foreign equities.

Interest rate volatility was once again prevalent in 2024, and while we expect this trend to continue in 2025, we do anticipate more moderate moves. Markets repriced their growth and inflation expectations over the second half of the year, pushing long-term rates (as measured by the 10-Year Treasury) back over 4.5%. At this point, with so much unknown on the path of inflation and the fiscal policy front with Trump entering office, barring an exogenous event, we would expect long-term yields to remain range-bound, producing a return relatively in line with the coupons on bonds. We also expect to witness further bull steepening – where shorter-term yields fall quicker than longer-term yields, eventually normalizing the yield curve back to upward sloping, albeit given the latest Fed rate projections, at a slower pace than previously anticipated.

In conclusion, Q4 2024 capped off another year of significant market gains and economic resilience. The Federal Reserve’s pivot towards monetary easing provided a tailwind for both stocks and bonds, setting the stage for an interesting 2025. With so much uncertainty surrounding the changing political landscape and resulting policy changes, we enter the year with our allocations balanced and in line with our long-term targets. The reset to our allocations reflects our expectations for volatility in 2025 as markets work through the political noise and reassess potential economic ramifications, and, on the other hand, our expectation for solid earnings growth across U.S. equities. Diversification across several public and private market asset classes should serve clients well in 2025. As always, investors should remain vigilant to potential risks while positioning themselves to capitalize on opportunities in the evolving market landscape.

Thank you for your continued confidence and support. If you have questions or concerns, please contact your Centura Wealth advisor.   

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor. 

The views expressed in this commentary are subject to change based on the market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.   All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed.  There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. 

Centura Wealth Advisory is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Centura Wealth Advisory and its representatives are properly licensed or exempt from licensure. 12255 El Camino Real, St. 125, San Diego, CA 92130.


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