Resources/Weekly Insights

Volume 14, Edition 12 | April 20 - April 26, 2025

Volatility’s Silver Lining Playbook

Doug Walters, CFA

A volatile market can fray investor nerves, but for the patient disciplined investor, there is opportunity in those peaks and troughs.

Contributed by Doug Walters, David Lemire, Max Berkovich, Matthew Johnson

US stocks have been riding the tariff roller coaster the past few weeks, creating investor whiplash. As I type, I couldn’t help but notice that the S&P 500 is up about 10% from the April 8th low… it is down about 10% from its February peak… and yet it is up about 10% over the past 12 months. What does this coincidence of 10’s mean? Nothing, and something. There’s no magic about the 10’s, but the ups and downs are an opportunity for the systematically disciplined.

We often tout the virtues of diversification. With all the fearmongering headlines this year it would be natural for investors to fear the worst when it comes to their portfolios. But if they are well-diversified, they may be pleasantly surprised. Yes, the S&P 500 is still down over 6% this year despite the recent rally, but gold is up 25%, bonds are generally positive, international equities have been quite strong, and there is another potential positive.

The silver lining of volatility is opportunistic rebalancing. The past few weeks have been a showcase for the importance of opportunistic rather than time-based portfolio rebalancing. As a quick reminder, time-based involves a full portfolio rebalance based on the calendar (e.g. every six months). Conversely, with opportunistic rebalancing, we look at portfolios every week for the “opportunities” to rebalance. We monitor every security in our strategies to see if it has significantly out- or underperformed. For example, if gold has outperformed and moved above a wide allowable range we have set, we will lock in some of those gold profits (sell high) and buy something that has underperformed (buy low).

The volatility of recent weeks shows the power of opportunistic rebalancing and the weakness of time-based. Have a look at the performance of these assets over a two-week period:

Week of 3/31: S&P 500 underperformed US Agg bonds by 10.2%
Week of 4/4: S&P 500 outperformed Agg bonds by 8.1%

Those are big swings over the span of just two weeks. I’m not saying that opportunistic rebalancing would have magically captured these swings perfectly, but the opportunity was there to benefit in part from those swings. The same can’t be said of time-based rebalancing.

As we navigate these volatile markets, our goal is not to try to predict every twist and turn. That’s a fool’s errand. Rather we are going to use all the evidence-based tools at our disposal, like opportunistic rebalancing, in an attempt to tip the market scales in our favor.

-10.2 %

S&P500 vs US Agg (wk of 3/31)

US stocks significantly underperformed the bond market the week of 3/31.

8.1 %

S&P500 vs US Agg (wk of 4/7)

US stocks bounced back, providing a benefit to those that were able to opportunistically rebalance after the declines.

Headline of the Week

De-escalate and Retain

Markets would rather have a word like “clarity” in the headlines. However, given recent events, “de-escalate” and “retain” will have to do. This week saw two negative catalysts taken off the table. First, the US may step back from draconian tariffs as a way to kick start some level of discussions with China. Next, it also appears that the Supreme Court dodged a tricky case regarding a President’s ability to remove a Fed Chair for policy issues.

The tariff picture remains blurry both in terms of where any discussion goes from here as well as the risks (or extent of the damage) should talks not produce satisfactory results. The picture is a bit clearer for the Fed. Treasury Secretary Scott Bessent was widely quoted as saying that Fed independence is a “jewel box that has got to be preserved.” It appears that view prevailed.

The change in tone was well received by markets, but there is widespread recognition that sentiment can change quickly, and “volatility” and “uncertainty” could be next week’s headline. For now, we’ll be thankful for the pause.

The Week Ahead

This may be a lions, tigers, and bears (and bulls) type week for the stock market. We’ll see an Inflation report, Jobs report, Gross Domestic Product, and earnings from some of the biggest companies in the world, and that is just in the States.

The Bears and the Bulls

The dreaded “R” word is rearing its ugly head again, and despite the market’s reprieve this past week, we are sure to get both sides of the debate armed with data after this week.

The Personal Consumption Expenditures index (PCE) is expected to cool off from the previous report.
Gross Domestic Product (GDP) for the first quarter is expected to show a tiny expansion of the economy.
The Institute of Supply Management’s Manufacturing Purchasing Managers Index (PMI) is expected to decline from the previous report.
Friday’s non-farm payroll report is predicted to mint 130,000 jobs for April, which is a significant decline from March, but still positive and keeping the unemployment rate steady at 4.2%.
Volatility is expected as there are numerous reports staggered during the week that can just as easily exceed or fail to meet the consensus expectations.

The Lions

Earnings season is in full swing with a heavy dose of blue chips and many of the magnificent technology companies reporting.

The big ones on the calendar are Coca-Cola, Caterpillar, Starbucks, Visa and MasterCard the large global consumer companies, Eli Lilly the weight loss drug darling, oil giants Chevron and Exxon and Warren Buffet’s Berkshire Hathaway, however it is technology that will rule the week.
Meta the owners of Facebook and Instagram, Microsoft, Amazon, and Apple in the same week are sure to be headline makers.

The Tigers

With as much as we have going on in the States, there are big things going on abroad.

Bank of Japan (BOJ) has a rate decision but is expected to keep rates unchanged.
The European Union is reporting its first quarter GDP and is expected to report a slight expansion.
Canada’s new Prime Minister, Mark Carney, is looking for a stronger mandate as his liberal party is leading by 5 points heading into Monday’s election after trailing by 24 points in January.
There is also an International Monetary Fund (IMF) meeting this weekend.

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