Dear Valued Client,

We appreciate the opportunity to provide you with an update on our recent investment strategy discussions and market insights. Every Monday morning, our team meets to discuss current economic and market conditions and how that relates to our portfolio management process.

Our meeting, on Saint Patrick’s Day, March 17, 2025, covered key aspects of asset allocation, market trends, and strategic adjustments aimed at optimizing portfolio performance in the current economic environment. Our meeting was especially timely after the turbulence we have been seeing in the markets lately. And with March Madness upon us in the college basketball world, the four scenarios we discussed can be thought of as “PPA’s Final Four”.

We hope you enjoy this summary of our ongoing discussions. Thank you!

Market Overview and Investment Strategies

Our team has been closely monitoring recent volatility in the markets, economic trends, and investment opportunities to ensure our investment process makes sense and portfolio positions remain appropriate. Key highlights from our recent discussions include:

Current Market Analysis & Risk Assessment: “PPA’s Final Four”

• Current downside pressure is primarily being caused by uncertainty around tariffs.
• Certain economic factors have shown this concern such as consumer confidence. This raises the question which way will the markets go?
• There are FOUR possible scenarios to consider given current market sentiment and perception going forward:
  • 1 - we could have a quick recovery to all-time highs.
  • 2 - we could have a partial recovery and remain range bound.
  • 3 - there could be a deeper correction (10-15% down).
  • 4 - we could have an all-out bear market (> 20% down).
• How could this happen? A lot of it depends on what investors and the markets perceive as a possible slowdown and/or business cycle recession. If few investors believe none of that will happen, then we are in the (1) range. On the other hand, if the majority of investors believe that will indeed happen, then we could see a bear market (4). In-between those marks lies the “grey zone”, aka uncertainty.
• Continued discussion focused on the possibly on being range bound (2) which could be the likely scenario as we continue through this transitional period of uncertainty given the backdrop of a resilient economy.
• Another possible scenario is we may see further downside pressure from here driven by revised earnings projections. But only to a certain extent before the market stabilizes on those revised projections (3).
• General consensus was there is potential for companies to revise earnings projections downward, which could lead to a gradual market decline (3).
• Defensive sectors such as healthcare, utilities, and staples remain areas of interest.
• High quality bonds and low duration risk are also favored.

Gold and International Investments

• Gold is considered a defensive asset, with its valuation, with its valuation at its highest level relative to the S&P 500 since November 2020.
• We continue to explore opportunities in international markets as well. Since we have been watching the US dollar fade to start the beginning of the year. That has been happening because of increased uncertainty in the United States due to tariff concerns, lower projected treasury yields (which makes other country’s rates look better) and inflation showing signs of cooling.
• We are also looking at a concentrated bet in the European region.

Portfolio Adjustments Amid Uncertainty

• Adjustments include reducing large-cap exposure from 34% to 28% while increasing small-cap exposure from 14% to 17%.
• Increased allocation to international investments from 27% to 30%.
• Refining fixed-income exposure by shifting towards quality and low-duration risk.
• Adding allocations to commodities, metals, and mining to enhance diversification and safety.

Hedged Equity Fund Analysis

• We are reviewing the performance of hedged equity funds, particularly strategies to help dampen the effect of volatility and downward pressure in the markets, as a potential market hedge.
• We are considering separate investment models for qualified (retirement/tax-deferred accounts) and non-qualified (taxable accounts) assets to enhance tax efficiency, in particular overweighting municipal bonds in non-qualified accounts.

Rebalancing and Investment Models

• Portfolio percentages are being updated and rebalanced to align with the latest market conditions.
• A structured quarterly rebalance approach for all accounts is under discussion.

Strategic Sector Investments

• Some potential sector ideas for additions to key holdings include:
  • Healthcare
  • Energy
  • Consumer Staples

Retail Sales & Consumer Trends

• Retail sales have shown a slight increase, despite lower consumer sentiment.
• This is creating an “on again”, “off again” pattern as some reports are good and others and not so good. For example, consumer sentiment has been down (not good), yet inflation, a popular consumer metric, came in cooler last week (good). Then we have GDP projected to be negative next quarter (not good) but the latest retail sales provided relief as the “control group” increase increased 1%, better than 0.4% expected (good). It excludes gasoline, building materials and restaurants and is a direct feed into GDP so there was a glimmer of hope there. It also suggests retails sales may not be a drag on GDP as was thought a month ago.
• Ongoing analysis of consumer spending trends, including the potential impact of tariffs on key sectors.