The world seems to be coming to terms with the idea that we don’t need to overreact, or even react, to everything we hear on the news. It takes more to shock us. From a social and cultural perspective, that may be problematic. But from an investing perspective, that’s a good thing.
The general outlook on the stock market here at Cabot is optimism. Over time, it goes up. Long-term investors are rewarded in the long run.
That is not generally affected by the whiplash-inducing 24-hour news cycle. I’m not saying none of the news is important. But for investors, it’s about the story, numbers, and charts – economic trends, market charts, financial performance, management quality and market opportunities make up much more of what matters.
Today we’re going to look at some of the macroeconomic numbers to see what advice they hold for investors.
Let’s start by looking at the overall stock market, as represented by the 3 major indices – the S&P 500, the Dow Jones Industrial Average, and the Nasdaq. The market has continued the upward trend begun in November of 2022, with the indices hitting multiple new highs this year.
Some market watchers feel the market is overheated, but the overall market gains have been substantially on the backs of the market leaders. Just 10 companies now account for nearly 40% of the total market capitalization, a record high.
That means there are plenty of stocks that still have plenty of room for growth, even if the indices were to start to fall due to softness among the top 10. While it’s a good time to review your portfolio to rebalance and adjust as necessary, it has never been a good idea to pull out of the market just because things are turbulent.
Inflation, which briefly peaked over 9% in June of 2022, has bounced around a little but, since July of 2024, has stayed at or below 3%, although it has been trending up since April of this year.
While the inflation spike of 2022 was driven largely by energy, core goods, dining and recreation, housing, and, to a lesser extent, food, most of those factors have been brought under control. Since the spring of 2023, inflation has been largely driven by housing costs, dining and recreation, and, to a smaller extent, car insurance.
Interest rates have been relatively stable for most of this year, but the Fed’s most recent action was a cut. And equally importantly, it foreshadowed additional cuts in the near future.
The numbers indicate that at 4.3%, unemployment has risen somewhat over the last couple of years from the 3.5-3.6% range but is still running below the 50-year average of 6% (see chart below).
Wage growth has slowed over the last several years from 5.6% in March of 2022 to the current rate of about 3.7%, a bit under the 50-year average of 3.9% (see chart of average hourly earnings growth below).
After bouncing around between $1600 and $2000 for 2022 and 2023, gold exploded early in 2024, rising to over $4000 as I write this. My go-to gold advisors don’t see that run coming to an end any time soon. In fact, more than one person I know who is knowledgeable about gold has said $5000 by the end of the year is likely.
Gold can rise for a number of reasons but as a hedge against inflation is probably the most common. As noted, inflation has not recently been a big factor in reality, although that doesn’t mean it can’t influence people on an emotional level (see chart below).
Another possible reason for the move to gold is concern about the potential disruption to the U.S. and global economies caused by a reordering of priorities and trading alliances, as well as threats of some quite large tariffs by the United States government. This has resulted in a level of uncertainty that could also drive increased demand for gold around the world.
For a variety of reasons, the full potential impact of tariff increases has not made its way into pricing data. Those can include loopholes and exemptions, importers absorbing some or all of the increase for now (how long will that last?), and consumer demand shifting to less expensive domestic goods.
That leaves economists, policy makers, corporate executives and private investors all having to make their best guesses about the impact and how best to play the current environment. That uncertainty may turn out to be the biggest cost of the tariffs if it triggers reduced consumption, which could increase chances of a recession.
To summarize:
Stock Market: After some disruption early in the year, rebounded to new highs.
Interest Rates: raised to head off inflation, rates are on their way down.
Inflation: ticked up slightly in 2025 but still below 3%.
Unemployment: up slightly this year but still in historically low range.
Wage Growth: down in 2025 but just barely below historical average.
Gold Prices: up more than 50% in 2025.
Taken all together, there’s a lot for investors to like.
But it’s not the full story.
For one thing, to have the stock market and gold have very good years at the same time is unusual. Something is going on there.
In addition, tariffs and trade policy uncertainty continue to be in the news – sometimes as the lead story, sometimes as the last story, but almost never completely off the list. And the specter of global realignment of trade relations creates another layer of uncertainty.
What to Do Now?
I see nothing that makes me think investors should take any drastic action to change course. There is unquestionably a higher degree of uncertainty than average, but the indicators remain strong.
After the dramatic but uneven growth we’ve seen in the market, I would certainly review and rebalance at a minimum. This is the type of situation where you can find that, between your individual holdings and a handful of funds you are in, you may be surprised to see just how heavy you are on the Mag. 7 stocks.
When concerns about uncertainty rise, it is also often appropriate to become somewhat more conservative in your portfolio. Trimming some of your positions in big winners of 2025 and reallocating those funds to dividends, value, and other blue-chip companies would make sense for many people.
This might be a time to increase your allocation to bonds or gold as well. To date, crypto has tended to amplify bullish and bearish trends, so it is not a good choice for those looking to derisk their portfolio.
It also isn’t a terrible time to hold a little more cash. Not because of any doomsday scenario but because uncertainty often travels with volatility. And volatility can mean opportunities to buy cheap. But only if you have the money to buy. (Think Warren Buffett’s approach of being fearful when others are greedy but greedy when others are fearful.)
Plus, 2025 has been a good year in the market. Even while we are generally bullish, a correction is not outside the realm of possibility. So, it’s not a bad time to consider moving some assets to cash. Again, I’m not preaching an overreaction. A 10% adjustment can soften the blow of a correction without completely taking you out of the market while you wait for it.
If you do increase your cash, have a plan for it. What sectors or companies would you buy and at what price points do they become compelling? Of course, the whole point of holding cash is to have flexibility so you don’t need a precise and rigid plan. But, as the old saying goes, failing to plan is planning to fail.
In my October President’s Report, I noted a few areas where Cabot is seeing some nice successes right now. The reality is things are strong, and our experienced experts are finding plenty of wins in all of the areas we cover – growth, value, income, options, early-stage/small-cap, and even cannabis.
Overall, there is no cause for alarm, but there certainly is a reason to pay closer attention. As they say on the news, this is an evolving story.
Stay tuned.
For your investing success,
Ed Coburn
President, Cabot Wealth Network
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