Mark on the Markets
May 2025

Tariff Talks…

Tariff talks continue to dominate the news.

Stocks began the month on a steep downward trajectory, experiencing losses reminiscent of the early pandemic lockdowns. However, by the end of the month, shares had managed to erase most of the early losses.

What Happened?

Two primary events dominated the conversation during the month. First, the imposition of ‘reciprocal tariffs on April 2, and second, the president’s threat to fire Fed chief Jerome Powell one year before his term expires. Referred to as “Liberation Day,” President Trump unveiled tariffs that far exceeded investor expectations. As reported by Bloomberg, these tariffs marked the highest levels imposed in more than a century.

While the tariffs may simply serve as a negotiating tactic, the resulting two-day selloff wiped 10.5% off the S&P 500 Index, according to MarketWatch data. This significant drop underscored investor worries that the U.S. economy might be in danger of entering a recession.

It was the perfect storm: falling stock prices, falling bond prices, and a lower dollar brought on by fears that extremely high barriers to trade could raise inflation, disrupt global trade, and possibly lead to a recession.

The adverse response in the financial market prompted the president to postpone reciprocal tariffs for 90 days, as he aimed to negotiate new trade agreements. He subsequently stated that he is willing to consider extending the initial delay. According to Bloomberg News, the delay fueled the third-largest daily increase in the S&P 500 Index since the end of World War II.

Fussing With the Fed

Trump has never been shy about expressing his displeasure with Fed chief Powell. On various occasions, he has publicly pushed Powell to reduce the fed funds rate. It’s not as if prior presidents haven’t pressured the Fed on rates, as former Fed Chair Alan Greenspan said in a 2018 CNBC interview, but it is usually done behind closed doors.

But later in the month, Trump upped the ante, threatening to fire Powell in a tweet on his social media site.

An Independent Federal Reserve

Can the president dismiss the chair of the Federal Reserve? Many legal experts believe he lacks the power to do so without cause. Nevertheless, entering this uncertain legal territory could lead to a swift market response, which encouraged the president to retract his threat to remove Powell.

Why do U.S. and global investors prize an independent Federal Reserve? Although the Fed does not operate in a political vacuum, “A politicized central bank opens the door to higher inflation, higher interest rates (bond yields), and a loss of confidence in the American financial system,” Morningstar said in a late-April analysis. “If the U.S. financial and political system is perceived as unstable, foreign investors may demand a higher return on their money to compensate for those risks,” the firm added.

In addition, many investors fear that a highly politicized Fed would maintain a low fed funds rate, which they worry could lead to a lasting rise in inflation and elevated bond yields. This concern is not limited to just one political party. With the exception of China, the worst of the tariffs are on hold, and Powell’s job appears safe. Subsequently, investors cautiously nibbled on beaten-down stocks, erasing most of April’s early losses.

Bottom Line

First quarter earnings have been exceeding expectations, according to LSEG. Coupled with the president’s lighter approach to trade and easing of China trade tensions, markets calmed considerably by the end of April. Yet, a weak first-quarter Gross Domestic Product suggests the economy is slowing, and the possibility of a recession cannot be discounted.

When market volatility increases, we continue to suggest the approaches we have discussed in the past. Keep your investments diversified, be aware of your risk tolerance during market downturns, concentrate on your long-term objectives, and refrain from making decisions based solely on the unavoidable fluctuations in market activity.

Mark on the Charts

The S&P 500 Equal Weighted Index has been rebounding in April. This recovery and uptrend looks to continue as most technical indicators are turning up. I remain cautiously optimistic, with expectations for potential rate cuts and a recovery in earnings growth. I believe sharp downturns and subsequent rebounds give greater clarity to the strength of the market and especially the underlying securities.

Timely Tax Tidbits

3 Simple Ways to Lower Your Required Minimum Distributions (RMDs)

The government wants to collect taxes on the money you've saved in traditional retirement accounts, like IRAs, which may have grown tax-free for years. Required Minimum Distributions (RMDs) are the amounts you must withdraw from these accounts starting at age 73 (or 75 starting in 2033, thanks to SECURE Act 2.0). These withdrawals are taxed, and large account balances can lead to high taxes. Below are three straightforward strategies to reduce your RMDs and taxes. As always, we recommend consulting with your tax professional before acting.

1. Smart Withdrawal Planning

If you're in a lower tax bracket (like 10%, 12%, or 22%) early in retirement, consider withdrawing money from your traditional retirement account now. Paying taxes at these lower rates can reduce your account balance, lowering future RMDs. Waiting might push you into a higher tax bracket later, especially if your account is large (e.g., $2 million or more) or if you're affected by the "widow's penalty" (higher taxes after a spouse passes). Also, unless Congress enacts legislation to extend or amend its provisions, tax rates may rise next year when the Tax Cuts and Jobs Act expires. Act now to save more later.

2. Convert to Roth IRAs Over Time

Roth conversions involve moving money from a traditional IRA to a Roth IRA, paying taxes now at lower rates to avoid higher taxes later. This reduces your traditional IRA balance, lowering future RMDs. For example, converting small amounts each year while you're in a low tax bracket can save you from a bigger tax bill if your account grows or tax rates increase. Thoughtful planning, comparing current and future tax rates, ensures you convert the right amount each year.

3. Use Qualified Charitable Distributions (QCDs)

A QCD lets you donate up to $108,000 in 2025 from your IRA directly to a charity, tax-free. This reduces your IRA balance, lowering future RMDs and taxes. If you're already taking RMDs, a QCD can count toward your RMD without being taxed as income. This also lowers your taxable income, which can reduce taxes on Social Security, Medicare surcharges, or other income-based costs. It's a tax-smart way to support charities.

By using these strategies, you can reduce your RMDs, lower taxes, and plan smarter for retirement. We will work with you and your tax professional to find the best approach for your situation.

Why We Are Committed to Biblically Responsible Investing

Biblically Responsible Investing (BRI) is an investment approach that integrates faith-based values with financial decision-making. Rooted in biblical principles, BRI seeks to align investments with moral and ethical standards while pursuing financial returns. BRI is a cornerstone that offers our clients the potential to generate a positive impact beyond financial gains.

We’re committed to helping you experience financial contentment and peace through a plan that’s right for you, and by aligning your investment with your Christian values. It’s about understanding how you want to live and what you want to do. Whether you want to spend time with family or volunteer to make the world a better place, we help you prepare to spend your time, talents, and resources on what matters most to you.

Implementing faith-based investing begins just like any other investment
management process – we’re looking for great investments!

I hope you’ve found this review to be educational and helpful. Our goal is to be a guide to you as you run the race and keep the faith. 

For surely I know the plans I have for you, says the Lord, plans for your welfare and not for harm, to give you a future with hope. - Jeremiah 29:11

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