Imagine you are coaching a NCAA basketball team that went 30-4 during the current season.  You won your conference regular season and tournament.  You are selected to play in the 2025 NCAA men’s basketball tournament against a team that was 25-9 and lost 4 of their last 5 games prior to winning their conference tournament.  You lose the first-round game by just 3 points…and if you would have won it would have been considered an upset.  You are the #12 seeded UC San Diego Tritons, and you lost to #5 seeded University of Michigan.  How many brackets would have been busted if the results were changed?  Everyone is looking for that one (or two) teams that they can choose for an upset in the hopes of winning their bracket challenge, but often choose primarily teams that have name recognition.

UC San Diego has been playing NCAA basketball for 60 years and has moved from Division III to Division II (where they hold the all-time record for CCAA Tournament Titles) to the big time in 2021.  This year was the first year they were eligible to play in the DI tournament and they were selected to play.  They are a strong program with a history of success at every level – some would even call them a “Blue Chip” basketball team.  Yet they were underdogs because they didn’t have the national name recognition.

We face the same situation in the financial markets.  Everyone is looking for an edge, a hot stock, the next Amazon or Nvidia, and comparing their portfolio to the Dow Jones or S&P 500.  The question is why?  Not why are you looking for a great investment opportunity, but why does the appropriate investment have to be the next Amazon?  Perspective and expectations are critical to this conversation.  When people talk about the “markets,” they often refer to the S&P 500 and assume that all 500 companies have an equal effect on the movement of the index.  Therefore (the assumption goes), a portfolio made up of select S&P 500 companies should mimic and perhaps even beat the index.  But just like the NCAA selection committee giving preferences to the 4th, 5th, 10th place team in the Big Ten over UC San Diego, four stocks make up 23.76% of the weighting of the S&P 500.  According to Investopedia.com, Apple, Nvidia, Microsoft and Amazon have almost 25% of the total value of the index – which means the daily movement of these 4 companies can carry more weight than the movement of 100 other stocks combined.  If we add the next 6 largest weighted stocks, that % increases to 36.12%! 

Imagine if I came to you and said, “you have $500,000 to invest, and I would like to buy $180,600 worth into just 10 individual stocks.”  You may start to wonder about my financial planning responsibilities.  In 2024, you may have called me a genius, because 7 of these 10 are now called the “Mag 7” for their extreme growth over the last 2 years.  However, in 2022 these same 7 companies combined for -46% return (compared to a -19% drop in the S&P 500).  So, while (theoretically) you should have bought the Mag 7 in 2022 when they were significantly lower in share price, you would have thought I was crazy for suggesting it and perhaps looked for another financial firm.  And in fact, many clients of Majestic Financial were asking us whey they still owned Amazon and Google during 2022 and even most of 2023.  Many of these same clients asked us why they didn’t own more Amazon and Google because of the growth from mid-2023-2024.  As we prepare for April of 2025 to begin, some of these clients are now upset when they see their portfolio a little down – as only one Mag 7 stock is positive for the year (META).

Am I saying clients are being fickle or unreasonable?  No.  But the short-term perspective and expectations can get in the way of allowing strategies to work for them.  We all want to choose the right “Cinderella” team…but it’s a Cinderella for a reason – it may make a huge splash but fade quickly.  Congratulations to those who get lucky and choose correctly but remember that only six teams have made it to the tournament semi-finals as a #11 seed, only one #8 seed has won the tournament, and only two #16’s have ever beaten the top seeds.
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So, is this an argument for just selecting the top seeds – the Mag 7?  Not at all.  My point is that the Mag 7 will change again, just like the top stocks of 2022 were not the Mag 7.  The next big stock may already be in the S&P 500, or it may not even be incorporated yet.  The key is to know what your goals, risk tolerance, and time horizon are and find the right current asset allocation each quarter and year.  Sometimes the portfolio is going to be great for months or years.  Sometimes, adjustments must be made in shorter time frames.

I think we can all agree that selecting the NCAA Tournament Champion would be easier if you picked round by round instead of before the games were played.  Investing would be easier if the universe of stocks was only 10 or 20 companies, and they all grew every year.  But alas, that’s not the case.  So, we will all just keep our eyes open for opportunities that make sense for our goals and hope our Cinderella team dances at the ball.
 
Written by Sean Budlong, CFP®, AAMS, Chief Executive Officer, Majestic Financial, Financial Consultant, RJFS
 
*Disclosures: Any opinions are those of Sean Budlong and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Past performance is not a guarantee of future results

​It’s now March 10, 2025 and anyone watching the markets and their accounts are either starting to get nervous or have been for a little while.  The Trump Administration has added tariffs to Europe, China, Canada and Mexico.  It has also pushed back tariffs by a month and had (a few) carve outs.  But the messaging hasn’t changed from President Trump – tariffs are good for America.  This is the second blog I have written on tariffs this year, and Brandon and I have also done a podcast on them.  Yet for all the talk and fear, there is still no clarity about what the effects of this round of tariffs will be.  This is because there is no clarity regarding the goals of the tariffs.  Here are 4 possible scenarios that I see in the coming months.  These are taken from an email I sent to a client who was asking about the market volatility and tariffs.
 
Scenarios:

1. There is no real plan from this Administration, just a desire for a showing of strength to bring jobs and manufacturing back to the US.  If this is the case, there will be pain in the short term as tariffs are not viewed by the Administration as a bargaining chip but instead a means to force companies to do its bidding.  This will cause massive disruption in the economies of both the US and our trade partners.  This will also cause both Republican and Democratic elected officials to put severe pressure on Trump to change tactics since many of the manufacturing companies couldn’t adjust their production and workforce in any sort of a short term.  How does this end?  I don’t know, but the politics would be brutal for all involved.  In this scenario, you would want to be invested in high quality companies that are not heavily dependent on international trade.  You would want to be invested in companies that are already producing a large % of products domestically. 
2. The tariffs are designed to create short term pressure on Canada and Mexico, while putting more severe pressure on China and the European Union (both of which have significant tariffs against US goods and have for decades).  In this scenario, Canada and Mexico would have to adjust significantly faster than the US because we are the largest market for their exports.  While there are significant issues where goods cross the borders multiple times prior to final sales (cars), the tariffs would hit the economies of those trade partners sooner and deeper than retaliatory tariffs would the US.  The long-term effect on Europe and China is unknowable right now, but again we are the largest consumer of Chinese goods and their economy is hurting far more than ours at present.  In this case you would want to be invested the same way as Scenario 1 but be ready to shift into some companies and sectors that could see a short-term drop but a quick rebound.  We are ready for this.
3. There doesn’t seem to be any economic plan for the short/long term and the market responds by dropping 20%+ and the analysts and talking heads are screaming about the next “market crash.”  This scenario is an emotion-based situation that I can easily see happening.  However, the fears about the market “crashing” don’t scare me because the fundamentals don’t back it up.  The tariffs are not something I am in favor of, but they are also not crippling enough to damage North America’s economy to the point of a market crash.  Most companies that will be affected have already been dealing with tariffs since Trump’s first term (Biden never reduced those tariffs) and have the ability to respond – maybe not quickly enough to stave off a drop in stock price, but they won’t go out of business either.  An example of this situation is NVDA.  Two weeks ago, NVDA beat analysts’ earnings expectations (and they were extremely high) and the stock still dropped double digits.  But NVDA’s earnings proved that there is not a doomsday coming for the company, which could indicate a buying opportunity.  In this scenario you would want to be invested like in Scenario 2.
4. The tariffs and retaliatory tariffs create an immediate sit down with leaders of our trade partners where they swiftly come to agreements on how to move forward.  The short-term drop in the market is quickly changed to upward momentum – not for every company or sector but for those areas that are not going to be as negatively affected.  This is exactly what happened during the first Trump term.  In this case you would want to be ready to buy specific companies who’s share price dropped but will benefit from the lack of a trade war.  We are ready for this.

 
The bottom line is that while we are not enjoying the market volatility and the potential for a large disruption in the economy, we are ready to adjust to the market each week and month.  We don’t allow politics to determine investment policies, but we are very aware of the impact it has on our clients.  We want to make sure we help ease fears while not creating new ones.
 
 
Written by Sean Budlong, CFP®, AAMS, Chief Executive Officer, Majestic Financial, Financial Consultant, RJFS
 
*Disclosures: Any opinions are those of Sean Budlong and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.