EWA Stock Market and Portfolio Commentary Q2 2025

Speaker 1 – 00:00
Foreign we are going to discuss our quarter two market outlook and also, you know, look backwards at quarter one.
We’re doing this a little bit early just given the recent market volatility. We’re not going to get into politics but we are
going to talk about how this will affect your portfolio and what moves we are making proactively to address any
volatility in the market and what we see moving forward as the best positions obviously staying in the market at all
times. We came into 2025 with a risk on stance in our portfolio refecting an optimistic view of the strength of the
overall US Economy and a better than consensus outlook on the trajectory of corporate earnings.
Speaker 1 – 00:38
So in this trade we remain risk on maintaining a clear preference for stocks over bonds though we are modestly
recalibrating the magnitude of this view by reducing our equity overweight from 4% to 3%. So just as an example,
this means if you’re an 8020 investor, 80% equities, 20% fxed income. Back in November were 84, 16 and now we
are going to be 83% equities, 17% fxed income, just using 8020 as an example. So this refects an acknowledgment
that markets have moved a bit closer to pricing in our above consensus forecast. However, within equities we’re
increasing our overweight. In the US you know, historically we’ve been 2/3 US so for example in a 100 stock, 100-00
stock portfolio, 0% fxed income, traditionally you would be 2/3 in the US 1/3 international. Now that’s calibrated to
about 78 US 22% international.
Speaker 1 – 01:41
We’re empathizing exposure, emphasizing exposure to large high quality US companies with relative earnings
strengths. While fading the recent developed market rallies or regional forward earnings guidance calls, international
earnings signals have softened and in our view that European economy remains meaningful behind an AI
infrastructure build out will likely continue to face challenging geopolitical issues in 2025. We are also reducing our
overweight to Chinese equities, mitigating exposure to potential positive surprises from tariff negotiations and
aggressive Chinese government stimulus. So we’re going to fnd we have a very cool slide that shows, you know,
essentially what the parity line between the US and other nations are. And surprisingly China is actually a little bit left
of the parity line, meaning our current setup with China is favorable to the U.S.
Speaker 1 – 02:29
Now there’s a lot of political backed, you know, we think is negotiations that are happening still threatening China
with these tariffs. But we do view that you know given the underperformance of China in the last couple years, we’re
lessening our complete avoidance of Chinese markets. Moving forward in an effort to import improve overall
portfolio diversifcation. We are adding to scarce assets. So in this trade we have an increased our gold allocation by
another 1% funding from fxed income. So gold has delivered very strong results since our November 2024
rebalance and we see further upside catalysts from potential global trade disruption geopolitical confict fnally, with
fxed income we are shortening duration positioning within the US Treasuries expecting to capture similar term
premiums and yields but with less volatility by moving away from ultra long bonds.
Speaker 1 – 03:22
Over the past few months markets have been quite the roller coaster ride driven by a series of headlining grabbing
events following the presidential victory of Trump in November, there was a huge surge in the market returns.
Investors welcomed his pro business agenda which included corporate tax rate cuts deregulation. However, the
initial excitement of the Trump trade began to wane as the Federal Reserve’s hawkish stance on future rate cuts led
to another market pullback in December. As we moved in January and February, volatility persisted fueled by a series
of market moving events. We were hit with an AI related sell off as Deep Seek, a Chinese AI lab released LLM that
raised concerns over AI hardware spending and US AI dominance. More recently we’ve experienced signifcantly
uncertainty over Trump’s tariff policy and infation. Despite the barrage of headline events, markets have shown
remarkable resilience.
Speaker 1 – 04:09
S&P 500 has risen by 3 and a half percent since November as of February 25th of 2025. This resilience is important
to highlight because we believe these topics will continue to drive volatility moving forward. As a team, we are very
focused on the health of the economy, consumer and corporate fundamentals as the long term drivers of markets.
US economy appears strong on many measures. However, unemployment has inched up but remains low at 4.1%
with the labor market averaging 186,000 new jobs per month in 2024. Consumers are showing resilience and a
tightened housing market is contributing to historically high home equity values and related wealth effect. This
uptick in headline sensitivity certainly deserves attention, which underpins our decision to make a slight trim to our
overweight in the equity positions while still maintaining a strategic overweight to risk assets.
Speaker 1 – 04:55
Shifting our attention to earnings we spend a lot time analyzing and talking about forward looking earnings
expectations which is a big driver of our tactical positioning in our portfolios. And the good news is the earnings
growth forecast in the US Stocks continue to be very strong. We are seeing however, a bit of broadening out fnally
taking place. The MAG7 now comprise a third of the US equity market, has dominated both headlines and returns for
the past two years. Will this cohort continue to outperform in 2024 helping drive positions alpha as tech continues to
be one of our large overweights in the portfolios, we’re starting to see the market breadth expand and as shown in
this graph in Q year on year results, earning results specifcally for the MAG7 dwarf results of the S&P 500 without
tech over 22% versus 6%.
Speaker 1 – 05:39
However, further looking at the data of Q4 we still see that the very strong double digit earnings growth in tech, we’re
seeing that gap narrow meaningfully with the S P500 excluding tech coming in at 12.3% now. So as a result we are
reducing our long held underweight to value stocks as well as looking to incorporate some thematic ideas where
appropriate in a world that we think requires a bit more granularity. All of that said, we still expect the max 7 to lean
earnings growth and this continues to be our favorite position in the US equity market. We have similar conviction in
the broad mega cap stocks and quality stocks. However, as their relative growth advantage declines, we see the
opportunity for equity outperformance emerging beyond these mega cap names to perhaps come more of a balance
overall.
Speaker 1 – 06:21
As investors have grown accustomed to robust earnings, market reactions to positive surprises are starting to fade.
This desensitization has led to a progressively muted response in stock performance following earnings beats. Over
the past fve years, we tend to see stocks move higher by about 1% two days before the earnings release. Through
two days after companies beating expectations, Q4 actually see an average price increase of half a percent in the
same period. It’s also worth noting as it’s not fully capturing this chart, but many of the earnings beats we saw in Q2
and Q3 were coming from technology and communication names where earnings beats were massive. So Some of
this Q4 data can be explained as the market is becoming less impressed with Beats.
Speaker 1 – 07:00
But it’s also worth noting that the magnitude of Beats isn’t as large today as it was a prior a few quarters ago. At the
same time, companies missing expectations are facing heightened scrutiny. Five year average has moved from 1.8%
negative to 2.3% negative for companies missing expectations in that same two day window. And as you can see in
the chart, we are seeing these trends play out just over days, but now weeks. Equally striking is the observation that
for companies not beating expectations, not only are they being punished early on, but we’re not seeing that same
snap back observed in the prior quarters. Looking at the rightmost chart, this further supports the notion that
staying invested in the parts of the market that are continuing to deliver earnings and earnings beats has become
increasingly more important.
Speaker 1 – 07:42
In addition, 2025 earnings expectations have steadily revised downward. While such adjustments are common,
investors typically wait for actual results before reacting. However, with the S&P 500 trading at 22x forward earnings
further downward, revisions could weigh on sentiment and dampen market confdence. We actually view these
lowered estimates as a potential positive as they reset expectations and reduce the hurdle for outperformance.
Negative sentiment surrounding revisions reinforces our buy the dip approach in particular, and we have a strong
foundation of growth in Federal Reserve that remains on hold. Underpinning the market consensus today is 2.3%
real GB GDP. And so while the scope for broad economic expansion is not as hot as it was last year, we want to
continue to lean in the portion of the market driving earnings per share.
Speaker 1 – 08:23
Higher market overreactions often create compelling entry points, and with strong fundamentals still supporting
long term growth, these disconnects can offer attractive investment opportunities. Our preference for US equities
are over developed Market challenge 2 Prevailing narratives that leading US tech stocks are an overcrowded trade
and that developed market international stocks offer contrarian value. The outperformance of the Magnifcent seven
specifcally in recent years, coupled with rising tech exposure in the major indices and AI driven enthusiasm, has
fueled the belief that tech is widely owned across portfolios, suggesting that outperformance may now lie in
contrarian positioning. Looking at the chart on the left, we analyze all active fund managers holdings through their
13F flings found on the SEC website. You can see that somewhat counterintuitively, active managers actually
remain underweight Most of the Mag 7 and broader large cap tech and by a wide margin.
Speaker 1 – 09:14
This positioning has weighed on the performance of many of our competitors which has struggled as a result. This
is a pain trade that they wish to resolve and so we see this as being somewhat of a favorable setup for tech names.
The idea that international developed market stocks are under owned is also misleading. Survey data suggests that
developed market equities have become a consensus long trade, contradicting the notion that they represent an
overlooked opportunity. When tensional international stocks outperformed US equities earlier in the year, driven by
improved earnings and a pause in US dollar strength, we believe this relative momentum could fade. Recall that in
November we added to developed markets to take a more neutral posture. As that time we’re seeing a slight
improving earnings picture which has allowed us to participate on this recent rally.
Speaker 1 – 09:58
However, international developed market earnings signals have weakened and Europe remains signifcantly behind
really in AI infrastructure development. We’ll continue to grapple with geopolitical challenges heading into 2025, so
believe it’s a good time to fade this trade Moving to the Policy Landscape We’ve seen that President Trump has
begun to move quickly and aggressively in many regards, seen through his appointments, his relatively large number
of executive orders and his desire to reduce government waste. Etc. On February 13th he issued a memorandum
directing several US agencies to come up with plans for specifc tariffs, following the spirit of how he directly said on
social media that whatever countries charge the United States, we will charge them no more, no less. As we
demonstrate here on the slide, there’s actually signifcant dispersion in this regard.
Speaker 1 – 10:42
Be noted that measuring tariffs on apples to apples basis is complicated and can come up with results that vary
widely. Here we show analysis from the Wolf Research Point data from the World Trade Organization which
incorporates most favored nation rates. In the White House memo, the ask was not only on terrorists, but also on
VATs, digital service, taxes, et cetera. Given a potential broad view of reciprocity and leading to even more
uncertainty, we see two takeaways. First, we observe that this reciprocity on tariffs only should result in just
moderate tariffs in most cases, especially as many of our key trading partners like Canada and Mexico are covered
by free trade agreements. Second, a lot has been made in the news about policies we may place on China.
Speaker 1 – 11:20
What’s interesting to observe is that China already exists above the reciprocity line, which means it’s favorable for
the us. That is to say, we already have much higher tariffs in place compared to what they impose on the US exports,
creating possibility that tariffs could be less signifcant than originally anticipated within the portfolio and
specifcally our emerging market equities. We do think there is a growing risk of remaining underweight to China. We
have seen the Chinese central government enact a number of stimulative measures. We do not think there is a risk
to the upside for China. Also note where our other signifcant emerging market players like Brazil and China exist on
this chart.
Speaker 1 – 11:55
Well, our long term views remain intact that there are several long term strategic challenges in place for China and
we are looking to take some risk out of the anti China bet and adding to broad emerging market exposures
alongside our emerging market, excluding China exposure because we have an ETF that specifcally excludes China.
Ultimately, when it comes to this policy, it’s quite hard to predict exactly what will be put into place or even what the
President has authority to enact. As it stands today, these various government agencies have just been asked to
provide analysis by April 1, after which then Commerce and the United States Trade Representative can investigate
what policies to pursue. As always, we’ll continue to watch closely and adjust portfolios as needed.
Speaker 1 – 12:33
And one thing that’s interesting about this chart is that Canada and Mexico, as you can see, are right on the
reciprocity line. And China again in the upper left hand corner of the page, already favorable. This has been a big, you
know, huge risk to a lot of corporations in the US that do a lot of imports from China. This may not be bad, as bad as
originally anticipated as to be expected. Corporates are keenly focused on what may transpire here as tariff has
become a boardroom buzzword again with mentions on earnings calls exceeding Trump 1.0. Error levels with
impact is yet to be understood. Tariff increases could impact corporate margins and disrupt spending plans at least
moderately. Looking at the yellow line, which is represent by the Bloom and Davis Economic and Policy Uncertainty
Index, we also see a huge uptick here.
Speaker 1 – 13:18
In the recent weeks, sentiment regarding tariffs has become excessively bearish. So in line with one of our key
points from the prior slide, we don’t think it’s a stretch to say that the pain trade for any surprise could actually be to
the upside with fewer changes than feared. While there are signifcant unknowns here, looking at these charts we
would argue that much of this uncertainty has been baked into the market already. And given the fundamental and
economic picture we painted, we don’t see this as a time to signifcantly de risk.
Speaker 1 – 13:42
In November we highlighted our growing interest in the scarce asset theme as a means to help hedge a potential
loss in purchasing power, and we expressed this through an addition to gold that trade has been very additive to
start the year with the precious metal up 8% through February of 2025 from the time of AD versus the Bloomberg US
aggregate bond index up 1% and the S&P 500 relatively fat. A core thesis for us comes back to the idea that we
have seen a signifcant uptick in both institutional demand as well as international central banks buying gold.
Notably, we central banks in China and Russia looking for a way to diversify their reserves from the dollar and an
increasingly hostile geopolitical landscape. We don’t see this trend slowing down.
Speaker 1 – 14:22
Nearly 70% of global gold mine output continues to be purchased by central banks, creating an attractive tailwind in
the demand picture. Further, we do think that gold provides strong diversifcation properties. Gold carries a beta to
long treasuries of about 0.7 and so when funding from fxed income, we’re not entirely getting away from fxed
income risk characteristics. As a strategic holding, however, we see some of those protective features that we’ve
earned from Treasur injuries historically. We also see more upside in the near term with the run in the equity markets
in 2023 and 2024, market participants may fear that they’ve missed the boat and that entry points are no longer
attractive. When examining historical data we see the three year annualized returns are lagging long term returns so
currently trending at the bottom 25th percentile since 1957.
Speaker 1 – 15:05
Additionally, looking through all bull markets going back to 1926, the average length spans 55 months for which we
are only about halfway through. We do not see a repeated 2022 bear market on the horizon which was driven by
surging infation, unpreced and federal reserve rate hikes and geopolitical instability following Russia’s invasion of
Ukraine. Today we are no longer impacted by massive unwind from the COVID resulting in excessive infation. We
have a Fed that is still on pause and the economic picture remains favorably overall. While the pace of recent gains
over the last two years feel rapid, taking a longer prospective returns remain below historical averages and with no
immediate concern for recession on the horizon, we believe there remains plenty of room to run with a positive
outlooks for stocks moving forward.
Speaker 1 – 15:46
So historically the returns of three year averages have been about 10% and right now our three year averages 2022,
23, 2024 is about 8 and a half percent. So if wondering now it’s time to fund in the market or make adjustments out,
stay the course and if you have cash on the sidelines, defnitely dollar cost averaging we recommend on a weekly
basis over the next three to six months. So bring it all together. Three major themes here. We’re trimming our equity
overweight from 4% to 3%, we’re increasing our preference for the US over our international space and we’re hedging
exposures to geopolitical risks. Any questions? As always, please reach out. We look forward to reviewing.
Speaker 1 – 16:27
And as always, a good fnancial plan can get you through a tough time and having the fail safes that we’ve always
discussed with our clients will ensure that you can live your life by design. You know, regardless if we’re in a 2022
when both stocks and bonds are dropping, want to make sure that you’re able to live your life, go on vacations, you
know, spend the money that you were expecting to spend if you’re in retirement, without worrying about headlines,
without worrying about any market volatility. If you’re a client of ewa, you have a fnancial plan that supports those
goals no matter what. But please reach out with any questions, and we look forward to discussing further.