Atlantic Edge Insights
May 2025
Navigating Tariffs, Volatility,
and Economic Uncertainty
Why the Market Bounced — and Why we’ve Positioned Portfolios More Defensively
​
In the month before and since President Trump unveiled sweeping tariffs, the S&P 500 experienced a swift 19% decline before recovering back to pre-Liberation Day announcement levels. Investors have been forced to weigh the longer-term implications of tariffs on economic growth, inflation, and corporate profits. While sharp selloffs and quick rebounds are not unusual following negative headlines, the question now turns to what comes next — and history suggests the answer may depend heavily on whether a recession materializes.
The chart below tells a powerful story: After major market declines, the difference between recession and no recession market performance is noteworthy.
-
In both cases, markets often bounce in the first few months
-
But one year later, the outcomes diverge — and recession paths lag
Average S&P 500 Performance Following Sharp Declines (data from 1928-2025)
What the Economy Is Telling Us
​
-
U.S. GDP declined by 0.3% last quarter — but most of that was due to companies rushing to import goods ahead of the tariffs.
-
Final Sales to Domestic Purchasers, a growth measure which removes the effect of trade, came in at +2.3%, suggesting the domestic economy is still expanding.
-
Still, warning signs are building: consumer confidence is falling, business outlooks are cooling, and recession odds have climbed to 40% (per Bloomberg consensus).
What We’re Doing in Portfolios
-
We trimmed small-company US stocks and emerging market stocks earlier this year, before the sell-off, due to concerns over expensive stock market valuations.
-
We’ve tilted more towards high-quality bonds, many of which yield 5–6%.
-
After having a strong US tilt over the past couple of years, we now favor a more balanced approach to a global stock portfolio.
-
We believe a diversified portfolio is the key to better risk-adjusted returns for the rest of the year.
We are not making directional market bets, but we are staying responsive. If economic data begins to improve or stabilize, we are prepared to lean back into risk assets. Conversely, if conditions deteriorate, portfolios are already positioned to mitigate downside.
​
As always, if you have questions about your allocation or want to revisit your long-term plan, we’re here to help.
Atlantic Edge Insights
Matthew Cochran, CFA
Robert Filosa, CFA
Ethan Caldarelli, CFA
Opinions expressed in this commentary may change as conditions warrant and are for informational purposes only. Information contained herein is not intended to be personal investment advice for any specific person for any particular purpose. We utilize information sources that we believe to be reliable but cannot guarantee the accuracy of those sources. Past performance is no guarantee of future performance; investing involves risk and may result in loss of capital. No graph, chart, formula or other device can, in and of itself, be used to determine which securities to buy or sell, or when to buy or sell such securities, or can assist persons in making those decisions. Consider seeking advice from a professional before implementing any investing strategy.
We are happy to provide a second opinion analysis of your portfolio
