“But where are the clowns?
Quick, send in the clowns.
Don’t bother, they’re here.”
— Stephen Sondheim
The first quarter of 2025 marked a significant turning point in market behavior: the long-awaited broadening of market leadership. After years of dominance by a narrow group of mega-cap technology stocks (commonly referred to as the “Magnificent Seven”), investors began rotating out of these names, driven by valuation concerns and an increasingly unstable macroeconomic backdrop. These companies, once seen as safe havens, underperformed this quarter as Wall Street began to grapple with the reality that major U.S. and global indices were more concentrated in their top ten holdings than they had been for more than 50 years.
Economic realities also grew more sobering in the first quarter as the U.S. economy slowed, burdened by uncertainties stemming from the President’s erratic policy moves and increasingly aggressive use of executive power. In the first week of the second quarter, however, everything changed. A recklessly implemented and poorly conceived U.S. trade agenda sparked a full-scale trade war between the world’s two largest economies. This further destabilized already fragile global supply chains. As of this writing, business leaders and officials in countries all over the planet are in the dark about what U.S. tariff rules are, how quickly they will change, and what exactly is being taxed. This new reality now forces businesses to think twice before making investments in a new plant, or new technologies, and will put an immediate chill on global economic activity. Markets have sold off across the globe and, in some ways, are already pricing in potential for a recession.
Corrections are healthy and inevitable. They can create tremendous opportunities for patient investors, but it is the way you prepare for corrections that gets you through them:
• In fully invested balanced accounts, we have been net sellers of stock for the last two years, keeping clients at long-term equity targets during the recent AI-fueled market advance. These sales raised significant cash and funded investments in safe, fixed-income reserves. We have invested in stable bonds paying out steady annual income.
• We have, for many years, been concerned about an uncoordinated global economy in which major actors have become increasingly protectionist, and in which supply chains have moved in reasonably constant flux. This has led us to focus even more on the highest demand themes, where growth is most assured.
• In our equity composite portfolios, we have been trimming cyclical exposures in technology and industrials for two years. And, we have been reinvesting in a diversified range of equity growth ideas, considering the expansion of price-to-earnings ratios in growth investments like the Magnificent Seven.
We are certainly feeling the gut punch of this correction, like everyone else. However, we believe that we are positioned well to weather through—and recover from—this market drawdown with better outcomes than our benchmark indices, as our equity composite portfolios did at the onset of the financial crisis in 2007 and the pandemic in 2020. We continue to measure the impact of global policies coming (seemingly daily) out of the White House, but will stay focused on larger, long-term trends that will continue to drive investments for years to come, even in a potentially slower-growth economy.¹
1 See important disclosures below.
We are not in the business of predicting recessions or timing markets, but our investing approach is rooted in a fiduciary mindset focused on capital preservation, resilience, and long-term value creation. We design our portfolios to reduce exposure to asymmetric risks that often emerge in periods of economic stress. This means we watch closely for red flags, such as:
• Commodities — These historically underperform in recessions. Our portfolio holds minimal exposure to commodity-linked businesses and zero exposure to carbon-based fuel companies.
• Credit Spreads — These tend to widen in downturns, squeezing highly leveraged businesses. Market dislocations often reveal hidden leverage. We remain concerned that investors may be underestimating the credit risks baked into the system. Excess leverage, particularly in hedge funds, private equity investments, and highly indebted businesses, remains a major vulnerability.
• Leverage and Counterparty Risk — We expect failures among over-leveraged businesses and funds, which may in turn stress the financial system. Over-leveraged financial players will face severe stress if interest rates remain high and global growth slows further in the face of policy uncertainty. We do not invest in money centers or investment banks, and we have carefully steered clear of businesses with fragile balance sheets.
In contrast, we focus on high-quality companies that are leaders in essential industries demonstrating excellence in managing costs, margins, and profitability. These are businesses that can adapt, create efficiencies, and thrive—even in the face of external shocks like tariffs. Cash-flow-generating businesses with consistent demand, effective management, and pricing power can win market share and take advantage of weaker competitors during downturns. We are focused on areas we believe are best positioned for durable growth:
• Global Infrastructure — Including water, electric grids, and telecom, which are pillars of real-world functionality.
• Efficiency-Focused Platforms — Automation and applied AI leaders driving efficiency in large-scale environments.
• Innovation Leaders — Revolutions in medicine and computer science are creating large, new markets at an extraordinary pace.
• Non-U.S. Developed Markets — For currency diversification and access to diversified trade routes in a world shifting toward more bilateral economic arrangements.
The current slowdown, triggered largely by man-made policy missteps, may or may not evolve into a recession, but the so-called “pause” in implementation only clouds visibility and increases risks, particularly in credit markets. But while uncertainty reigns, we remain focused, disciplined, and guided by deep research and historical perspective. The seeds of many long-term investment opportunities to compound wealth are often sown in periods of uncertainty like the one we are living through today.
As others work now to diversify away from massively correlated major market indices still warped by the most narrowly led bull market in recent history, we have spent the last two years increasing client reserves and broadening our investment mix into well-run businesses outside of technology. We believe that these are the types of opportunities that will increasingly become destinations for capital as equity markets continue to rebalance over time.
IMPORTANT DISCLOSURE: This newsletter is for informational purposes only and should not be treated as investment advice or a recommendation to transact in a particular sector or in a particular manner. The views expressed are those of Reynders, McVeigh Capital Management, LLC (“RMCM”) at the time of publication; such views are subject to change at any time based on market or other conditions. Any forward-looking statement does not guarantee future performance, and actual results or developments may differ materially from those discussed. RMCM may not achieve the investment objectives described herein and cannot guarantee that its investments will be profitable.
This newsletter is proprietary to RMCM. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed and RMCM assumes no obligation to provide recipients with subsequent revisions or updates to any historical or forward-looking information contained herein.
The performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Past performance is not indicative of future results. The MSCI World Net Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets. The S&P 500 Total Return Index is a market capitalization index which includes 500 leading U.S. large cap companies and captures approximately 80% coverage of available market capitalization.