Navigating Volatility and Staying the Course - More volatility to be expected!

The global market environment has been anything but predictable in 2025. U.S. equities, especially large-cap stocks, have had a strong run. But recent geopolitical shifts and trade tensions have highlighted the risks of overconcentration. As Warren Buffett has long advised, betting against the U.S. market is rarely wise—but betting solely on it can also be limiting.

Recency bias tempts us to believe what’s worked will always work. Yet this year, a diversified portfolio that includes not only U.S. stocks but also international equities, small caps, bonds, commodities, and cash has outperformed a U.S.-only approach. One hypothetical model portfolio—with 30% U.S. large caps, 10% small caps, 15% international, 5% emerging markets, 25% bonds, and smaller portions in real estate, commodities, and cash—has delivered stronger, more stable returns.

What does this mean in real terms? For many investors, it has helped mitigate downside risk from sectors under pressure while allowing them to capture growth from other areas. European markets, for example, have been buoyed by policy easing and lower inflation, while commodities have rebounded amid geopolitical disruption. By having exposure across these areas, portfolios have remained resilient.

This is especially valuable when markets wobble. And wobble they did.

Volatility is uncomfortable, but missing just one key day in the market can have serious consequences. On April 9th, markets staged a major comeback after a tariff-related sell-off. Investors who stayed invested saw their portfolios rise 2.3% year-to-date. Those who sold before the rebound and missed that single day ended up down 6.6%.

That’s a near 9% swing caused by one decision made after a few of the worst days of trading this year.

It reinforces a truth we regularly share: time in the market is more important than timing the market. The best market days often come during turbulent times, and they’re nearly impossible to predict. Staying the course is not just good advice—it’s essential.

And it’s not just a one-off. Studies consistently show that the majority of stock market gains over any given decade come from a handful of trading days. Missing those days can severely reduce long-term performance. For investors with multi-decade horizons, that’s a risk too great to take lightly.

On June 13, Israel launched targeted airstrikes on Iran, escalating regional tensions and sending shockwaves through global markets. Oil surged nearly 9%, briefly topping $78 per barrel, as fears rose over potential disruption to the Strait of Hormuz. Gold, too, jumped around 1%, nearing $3,440 an ounce.

Bitcoin also moved higher—a nod to its evolving role as a potential hedge during uncertainty. While still volatile and unregulated, digital assets are becoming more closely watched in times of market stress.

Stock markets responded swiftly but not irrationally. U.S. futures dropped about 1.5%, and airline and travel stocks were particularly hard-hit, given rising fuel costs and potential route disruptions. Meanwhile, the S&P 500 and Nasdaq remain up for June, supported by strong economic fundamentals and a resilient tech sector.

This suggests that while markets are concerned, they’re not bracing for a full-scale conflict.

Adding to the anxiety, a tragic Air India crash on June 12 further pressured aviation stocks. Boeing fell 5–7%, and India-linked travel firms also saw losses. Though unrelated to the geopolitical events, it underscored the fragility of sentiment in this sector.

Geopolitical shocks are not new to markets. From the Gulf War to Russia's invasion of Ukraine, history has shown that markets typically adjust quickly to geopolitical news unless it results in prolonged economic disruptions. For most long-term investors, the key is not to react impulsively but to assess whether such events truly alter the broader economic outlook.

Alongside geopolitical headlines, we’ve seen a clear return to protectionist policies. On June 4, the U.S. doubled steel and aluminum tariffs to 50% under Section 232. The move excluded the UK but rattled markets, pushing up domestic metal prices and hitting global exporters like Tata Steel.

Even more striking was the White House’s announcement of a sweeping 55% tariff on Chinese imports, including products tied to fentanyl manufacturing. President Trump has also floated the idea of increasing auto tariffs beyond 25%, unsettling global supply chains and triggering a sharp selloff in automotive stocks.

Together, these moves point to a renewed push for domestic industry support—but at the cost of increased consumer prices and heightened uncertainty for global investors.

This renewed trade tension serves as a reminder that political risk is part of the investment landscape. Policies can shift quickly, and markets react accordingly. That’s why diversified portfolios are so important: they spread risk across geographies and sectors, reducing exposure to any single point of failure.

Fixed income markets didn’t escape the turbulence. U.S. Treasury yields ticked higher as investors weighed the possibility of inflation returning if oil prices stay elevated. Remember, when yields rise, bond prices fall—which is why some investors saw slight losses this week.

But bonds remain a foundational part of diversified portfolios, especially short-duration, high-quality instruments. Over time, rising yields can offer better entry points for income-oriented investors.

The policy response from central banks is also diverging. The European Central Bank has become the first major central bank to cut interest rates this cycle, a recognition that inflation is easing and economic growth has stalled. This is a major milestone and signals a pivot towards more supportive monetary policy in Europe.

In the UK, inflation has cooled to 2.3%, and the Bank of England is expected to cut rates as early as August. Lower borrowing costs could support the housing market and consumer spending, helping the economy gain momentum after a shallow recession earlier in the year.

Contrast that with the U.S., where the economy remains more resilient. May's jobs report showed 139,000 new jobs and steady unemployment at 4.2%, along with wage growth. These are not signs of an economy in distress. The Federal Reserve has held rates steady, and while markets still expect cuts later this year, policymakers remain cautious.

For investors, these diverging paths underscore the importance of active management. Different economies are moving at different speeds. Being able to adjust allocations accordingly—reducing exposure where risks are rising, and increasing it where opportunities emerge—can make a real difference over time.

It's important to note that we are not trying to beat the individual markets but ensuring that our clients are diversified across multiple markets instead of just one.

Market movements can be unsettling. But the right response is rarely to retreat. Instead, we encourage investors to refocus on their long-term goals, maintain broad diversification, and remember that headlines, however dramatic, often have fleeting market impacts.

At Hoxton Wealth, we’ve taken measured steps to navigate this environment. We reduced U.S. exposure earlier this year, added to Europe where valuations and policy are more supportive, and increased allocations to gold and bonds for added resilience. Our actively managed Aditum funds continue to adapt dynamically, balancing opportunity with risk control.

For clients nearing retirement, we ensure cash flow needs are supported by more stable parts of the portfolio, such as short-duration bonds and cash-equivalent assets. For younger clients with longer horizons, we focus on maximizing growth opportunities through global equities, while maintaining the flexibility to adapt.

It’s easy to be shaken by headlines—especially ones involving conflict, tariffs, or market volatility. But history teaches us that resilience, patience, and planning are the true drivers of investment success.

Markets may remain volatile in the weeks ahead, but if your portfolio is well diversified and aligned to your goals, there's no need to panic. In fact, staying invested through uncertainty is often when long-term gains are earned.

As always, if you have questions or would like to discuss your investment approach, we encourage you to reach out to your adviser or contact our client service team. We’re here to help you stay informed, stay confident, and stay on track.