Monthly portfolio brief

Remember your portfolio’s purpose as markets lose their shine

What you need to know

• U.S. stocks have lost some luster amid growth- and tariff-related concerns, but international markets and bonds shone, helping offset the impact of softer U.S. markets on well-diversified portfolios.
• During periods of volatility, it's important to remember the strength of a portfolio lies in its design, and 2025 is calling for a diversified approach across region, style, sector and bond allocations.
• View pullbacks opportunistically. We recommend overweighting U.S. stocks by reallocating from international developed-market stocks and, as of this month, international bonds.
• Within U.S. stocks, we favor large- and mid-cap stocks and, digging deeper, the financial services and health care sectors.

Portfolio tip

The strength of your portfolio lies in its design. Maintaining a well-diversified portfolio aligned with your goals can help you benefit from better-performing investments as leadership rotates, while helping you stay focused on your north star — your long-term goals.

Where have we been?

Mega-cap growth stocks — and U.S. stocks more broadly — have lost some luster amid growth- and tariff-related uncertainties. Mega-cap tech stocks garnered much attention over the last two years, and for good reason. In 2024, the growth prospects of artificial intelligence (AI) and the earnings they’ve generated drove 30%–40% returns across technology, consumer discretionary and communication services. Given these three sectors make up more than half of the U.S. large-cap stock market, their strong performance helped U.S. equities enjoy a relatively smooth ride higher.

But more recently, mega-cap tech has fallen out of favor over concerns about elevated valuations and the ability to achieve substantial earnings growth amid increasing competition. The three sectors dropped by an average of 6% in February, and two of them — technology and consumer discretionary — were the only U.S. large-cap stock sectors with negative returns through the first two months of the year.

More broadly, increasing economic growth concerns and trade policy uncertainties have weighed on U.S. stocks, causing them to lag bonds and international stocks. All three domestic equity asset classes fell in February. U.S. small-cap stocks, which tend to be the most economically sensitive, lagged the most. Larger, higher-quality U.S. stocks remain among the top-performing asset classes over 12 months, despite their recent volatility.

Volatility continued into March as the U.S. announced new tariffs on goods from Canada, Mexico and China, with varying responses from each country. While negotiations between countries play out, tariff and trade policy uncertainties are likely to be a source of market volatility in the near term, highlighting the importance of staying appropriately diversified.

International markets shone, helping offset the impact of U.S. stock underperformance in well-diversified portfolios. Contrary to the weakness within domestic stock markets, international stocks across developed and emerging markets have provided a bright spot for well-diversified portfolios, following a year of underperformance.

The potential for increasingly supportive economic policies across multiple regions, possible easing in geopolitical tensions, a softer dollar and historically low relative valuations have helped offset the weight of tariff-related headwinds, allowing international stocks to rotate into the lead. All three international equity asset classes were positive in February and are up by 2%–8% year to date.

Bonds provided a ballast as yields turned lower. As has been the case in the past, higher-quality bonds have recently moved opposite from U.S. stocks, helping offset the pullback in U.S. stocks and enhance the stability of a well-diversified portfolio. U.S. investment-grade bonds performed the best in February, but lower-quality U.S. high-yield bonds and emerging-market debt weren’t far behind and held the lead over the past 12 months. From a return perspective, cash-like investments have fallen toward the bottom of fixed income.

Coming into 2025, resilient growth, rising inflation concerns and a more cautious Federal Reserve drove a spike in yields, weakening bonds. More recently, however, growth has shown signs of moderation (particularly amid new tariffs), inflation has remained contained, and multiple major central banks continue to hint at additional easing. Interest rates have turned lower as a result, helping lift returns across all bond asset classes.

What do we recommend going forward?

The strength of a portfolio lies in its design, and 2025 is calling for a diversified approach, in our view. Different investments will shine at different points in time. Maintaining an appropriately diversified portfolio can help you benefit from better-performing investments as leadership rotates over time, helping take the guesswork out of investing. And perhaps more important, aligning the diversification of your portfolio with your north star — your financial goals — can further help enhance the strength of its design.

We’ve held the view that broadening equity market leadership in 2025 is likely to reward investors who hold well-balanced portfolios. This theme is playing out as many value-oriented, cyclical and defensive equities outperform previous leaders within tech. Within fixed income, falling interest rates have helped bonds outperform cash — the reverse of some previous years’ trends. We believe these themes are likely to continue in the quarters ahead.

Your portfolio’s design should be guided by the mix of stock and bond investments most appropriate for your risk and return objectives. Your financial advisor can help you diversify across international and domestic markets, incorporating stocks of various sizes, styles and sectors, and bonds of various maturities and credit quality, according to your circumstances. But keep in mind that diversification does not ensure a profit or protect against loss in a declining market.

Growth- and trade policy-related uncertainties are likely to cause unavoidable bouts of volatility, but an appropriately balanced portfolio can help prevent them from becoming a distraction.

We recommend overweighting stocks, favoring U.S. stocks over international developed-market stocks and bonds. As volatility rises, view pullbacks as an opportunity to invest in quality investments at more attractive prices, with an eye toward the solid foundation that remains in place, particularly within the U.S.

Above-trend economic growth provided strong momentum for U.S. markets heading into 2025. We expect the U.S. economy to maintain its position of relative strength, especially when compared to international developed economies, given the support of steady labor markets, contained inflation, additional central bank rate cuts and the potential for pro-growth policies and deregulation in the quarters ahead. The growth rate may moderate amid relatively restrictive monetary policy and the potential for increasing trade barriers, but we continue to expect a soft landing for the U.S. economy in 2025.

Corporate profits also appear to be on the rise, with lagging sectors playing catch-up to tech. This will likely provide U.S. equity markets an extra boost, helping to provide additional legs to the ongoing bull market, even if volatility rises. International developed-market stocks, on the other hand, face weaker growth prospects, greater trade policy headwinds and potential dollar strength, supporting our ongoing underweight positioning.

Within fixed income, we believe U.S. investment-grade bonds have become increasingly attractive when compared to international bonds as central banks cut interest rates and growth moderates. Yields in developed international markets are generally lower than yields in the U.S.

Given this yield advantage, we’ve raised our U.S. investment-grade bond recommendation to neutral and reduced international bonds to underweight to offset our recommendation to overweight stock investments.

Within U.S. stocks, we favor large- and mid-cap stocks and, digging deeper, the financial services and health care sectors. U.S. large- and mid-cap stocks tend to be more stable than smaller-cap alternatives but still offer exposure to economically sensitive sectors, helping well-diversified portfolios maintain a level of quality while benefiting from more cyclical investments, which are supported by U.S. growth.

We've also updated our opportunistic equity sector guidance to reflect overweight recommendations for the financial services and health care sectors, given our expectation for broadening market leadership beyond mega-cap tech.

Financial services appear less exposed to tariff uncertainty and may benefit from deregulation, particularly amid supportive economic growth. Health care exposure may help protect against economic softness and offers catch-up potential, given valuations within the sector.

We offset these overweight recommendations with underweights to the materials sector, given tariff and inflation uncertainty, and consumer staples, due in part to the potential impact of still-elevated inflation on consumers.

We’re here for you

The value of diversification has been on full display in recent months, given the swings in various markets. It can seem difficult to stay on top of these swings amid a barrage of headlines, but taking a diversified approach to building and maintaining your portfolio can help prevent the feeling that you’ve missed out.

Talk with your financial advisor about your well-diversified portfolio — a strategic design to help you navigate market volatility and rotating leadership while staying focused on what matters most: your financial goals.

If you don’t have a financial advisor, we invite you to meet with an Edward Jones financial advisor to discuss how our strategic and opportunistic asset allocation guidance can help you design a portfolio according to your risk and return objectives, helping you uncover the benefits of a well-diversified portfolio.

Strategic portfolio guidance

Defining your strategic investment allocations helps to keep your portfolio aligned with your risk and return objectives, and we recommend taking a diversified approach. Our long-term strategic asset allocation guidance represents our view of balanced diversification for the fixed-income and equity portions of a well-diversified portfolio, based on our outlook for the economy and markets over the next 30 years. The exact weightings (neutral weights) to each asset class will depend on the broad allocation to equity and fixed-income investments that most closely aligns with your comfort with risk and financial goals.

Diversification does not ensure a profit or protect against loss in a declining market.

Opportunistic portfolio guidance

Our opportunistic portfolio guidance represents our timely investment advice based on current market conditions and a shorter-term outlook. We believe incorporating this guidance into a well-diversified portfolio may enhance your potential for greater returns without taking on unintentional risks, helping keep your portfolio aligned with your risk and return objectives. We recommend first considering our opportunistic asset allocation guidance to capture opportunities across asset classes. We then recommend considering opportunistic equity style, U.S. equity sector and U.S. investment-grade bond guidance for more supplemental portfolio positioning, if appropriate.