Get Comfortable Being Uncomfortable
The second quarter of 2025 was a volatile period for global equity markets, reflecting significant uncertainty driven by the implementation of “Liberation Day” tariffs, mixed economic data, and weakening consumer sentiment. The S&P 500 ended the quarter with a modest positive YTD gain, recovering from the -18.9% decline from its February peak, triggered by the introduction of tariffs in April. Despite the market recovering from steep sell-offs, key economic data the Federal Reserve tracks have started to slow.
The US labor market has remained resilient, as April’s jobs report added 177,000 nonfarm payrolls, surpassing estimates of 150,000. The unemployment rate moved up to 4.2% from 4.1% in March and wage growth moderated to +3.8% Y/Y growth, aligning with the Federal Reserve’s target of stable inflation. The labor market data has shown that companies have cut back on hiring but are not laying off workers at a material rate. As illustrated below, the monthly Job Openings and Labor Turnover Survey (JOLTS) has shown openings slowing and it has become harder for unemployed workers to find a new job.
The US housing market exhibited signs of stabilization amid affordability challenges, with increased new and used home inventory levels. Median home prices have risen for 20 consecutive months, though the pace of growth has slowed compared to prior quarters. Mortgage rates remained elevated, which has also tempered consumer demand. Housing inventory has improved to a 4.4 month supply, the highest since the pandemic, providing buyers with more options. Affordability concerns and economic uncertainty for the second half of 2025 continue to drive a cautious housing market outlook.
Outlook:
Our recent 1Q 2025 Market Outlook was titled: Looking for Mispriced Opportunities in a Chaotic Market. Behavioral science reminds us that investors tend to be swayed by their short-term emotions during times of uncertainty, instead of relying on longer-term fundamental business and financial analysis. During periods of investor angst and worry, history has shown that attractive investment opportunities are often created due to valuation dislocations and market misperception. We were able to identify attractive opportunities across a variety of sectors and industries during the recent market turmoil that should add value to our clients’ portfolios in future periods. Importantly, we continue to see more attractive investment opportunities at present than earlier in the year, leading us to expand our watch list for potential equity strategy additions. At Oliver Luxxe, we remain focused on valuation and strong business models, with a long-term view that owning quality businesses with attractive reinvestment opportunities tend to create shareholder value.