WVU SMIF Portfolio Update: April 6, 2025
Markets on Edge: Tariffs, Turbulence, and a Shaky Pulse
Portfolio Overview
The portfolio declined by 5.54% this week. However, our sizable allocation to more conservative asset classes—such as gold, Treasury bills, and bonds—helped provide some insulation from the broader market downturn. Looking ahead, we are actively exploring opportunities to add existing positions or rotate into international markets to enhance diversification and capture potential upside.
Top Performers:
Top 3 (%)
POST +2.10%
UNH +1.75%
AWK +0.68%
Bottom 3 (%)
SKW -17.73%
HOOD -17.68%
CRS -16.34%
Market Outlook
This week, markets experienced a sharp decline, with the S&P 500 dropping below 5,075 and the QQQ falling under 427. Over the past three days alone, the market is down approximately 10%. Volatility surged following the announcement of new tariffs imposed by President Trump, which was made after market hours on Wednesday. The following day, markets gapped down roughly 4% in reaction.
Despite the steep selloff, our current view appears to lean more toward a market bottom than toward rising recession fears. However, the situation remains fluid. A recent JP Morgan report noted that if the tariffs remain in place for an extended period, there is a 60% chance of a recession. Heightened geopolitical tensions and uncertainty surrounding global trade have significantly increased the risk premium for U.S. equities. The risk-on nature of the market in previous months has significantly unwound, as shown in Figure 1.
Concerns over an economic slowdown may now be a more significant market driver than recent tariff-related headlines. Substantial capital has flowed into U.S. large-cap stocks over the past few years, many of which are now trading at historically elevated multiples—particularly in the more aggressive sectors. A rotation away from these areas into more defensive sectors, or even toward international markets, appears to be a logical next step. Furthermore, the Atlanta Fed’s projection of negative U.S. GDP growth adds to investor anxiety, potentially leading to weaker corporate earnings and a subsequent contraction in valuation multiples.
Although concerns surrounding uncertainty and trade tensions persist, there are positive factors that could help establish a market bottom. Which include liquidity conditions and overall sentiment. Currently, market participants widely anticipate a recession. Historically, such expectations often coincide with market bottoms, as money managers raise cash in preparation and redeploying capital once a reversal begins—often at higher prices. Additionally, the occurrence of three bear markets within a five-year span would be historically rare, suggesting a potential limit to further downside risk.
We expect market liquidity to increase in the coming months. Bitcoin, which we're using as a proxy for liquidity, has risen even as the broader equity market declined by approximately 4.5%. This divergence between risk assets and a liquidity gauge may signal a potential overreaction in equities. Additionally, falling bond yields and a weaker U.S. dollar over recent weeks are both supportive of increased capital flowing back into the markets. The recent decline in oil prices also reduces concerns about a re-acceleration of inflation. Taken together, these factors may provide the Federal Reserve with room to begin easing policy. As of now, the futures market is fully pricing in a rate cut at the June 18 FOMC meeting.
The market remains volatile and reactive to ongoing news, and we plan to remain vigilant in our sector allocation and closely monitor market developments in the coming weeks, especially as they relate to the two conflicting narratives outlined above.
Market Outlook Charts
Consumer Discretionary
Introductory Comments: The Consumer Discretionary sector faced notable headwinds this week, driven by ongoing market pressure from tariffs and historically low investor sentiment raising concerns of a potential recessionary environment. Despite this, we continue to outperform our benchmark, supported by the defensive strength of near-staple names like McDonald’s and our intentional international diversification. This strategic positioning has allowed us to capture upside in international equities while mitigating risk in a more vulnerable U.S. market especially in companies that outsource their materials seen in SBUX or AMZN. As the macro environment evolves, we remain committed to adapting our approach and managing risk with discipline.
Holding’s Relevant News: This week’s stock review highlights key trends for several major companies. McDonald's (MCD) and other fast-food chains remain resilient, benefiting from strong pricing power and the ability to diversify supply chains, protecting them from tariff risks. Mercado Libre (MELI) continues to thrive as digital adoption in Latin America fuels growth in e-commerce. Alibaba (BABA) is preparing to launch new AI models, positioning itself for long-term success in tech and global markets. BYD (BYDDY) is outpacing Tesla (TSLA) in EV sales, benefiting from strong global demand and a diverse vehicle lineup, while Tesla faces production and sales struggles. Starbucks (SBUX) could see margin pressure from potential tariffs on coffee imports, especially from Latin America, which may push prices higher. Amazon (AMZN) has been rumored to place a bid for TikTok, potentially diversifying into social media and short-form video content.
Sector Management: While there were no trades this week, we remain focused on managing risk through diversification and are prepared to deploy cash during this significant market correction. We continue to seek undervalued stocks with strong technical and favorable sentiment. In particular, we're closely monitoring our Chinese holdings, like Alibaba (BABA), amid ongoing volatility. Additionally, we're looking for opportunities to add to Starbucks (SBUX) once it finds solid support, especially considering potential tariff impacts that could affect margins and pricing. With tariffs and trade uncertainties impacting stock prices, we’re also keeping an eye on discounted stocks, aiming to capitalize on market declines by picking up quality names at lower valuations.
Benchmark XLY (%): -7.23%
Biggest Winner (%): MCD -2.27%
Biggest Loser (%): SBUX -15.99%
Consumer Staples
This week, the consumer staples sector has been resilient, as expected, with all stocks in the portfolio either holding steady or posting gains. Notably, Philip Morris International (PM) gained 3.5% on Thursday, while the broader market was down over 4%. The company’s continued focus on smoke-free products is a key driver behind its strong performance. The recent integrated report highlights the company’s progress toward its smoke-free vision, with a clearer purpose and a more favorable price mix that justifies a higher valuation multiple.
However, we are more concerned about Sherwin Williams and Walmart due to the potential impact of tariffs. Walmart, with its wide product range, could be affected by price increases, while Sherwin Williams, with its growing international presence, faces uncertainty regarding the potential effects of tariffs. This raises our level of concern for these positions, increasing the uncertainty around their future performance. However it is going to affect the stocks we own, it doesn't change any of our current theses and reasons for owning them.
We’re currently also watching Coca-Cola (KO) as they face headwinds from the U.S.’s new 25% tariff on aluminum cans, which directly increases packaging costs for its substantial canned beverage segment. Rising aluminum costs could compress margins unless offset by price hikes, a challenge given competitive pressures from PepsiCo and private labels. Looking ahead, KO’s outlook hinges on its ability to manage supply chain disruptions and pass costs to consumers without losing market share, with its scale offering resilience but not immunity to tariff-driven inflation. It will be interesting to see how this all plays out.
Benchmark XLP (%): -2.43%
Biggest Winner (%): POST +2.10%
Biggest Loser (%): PM -2.93%
Energy, Materials, and Utilities
Oil prices took a big hit this week, plunging roughly 10% to their lowest levels in four years, with Brent crude prices falling to $61 per barrel. This collapse came after bearish news, with OPEC surprising the market by boosting output and an escalation in trade tensions surrounding tariffs, which increased worries about global demand. The energy sector decreased, with the Energy Select Sector SPDR (XLE) falling about 5% as traders braced for weaker fuel demand and a potential supply glut across the oil patch.
Meanwhile, the Trump tariffs are creating headwinds for both materials and utilities. Materials companies can struggle as higher import tariffs raise costs and squeeze demand for their products. Utilities can be affected because trade-driven inflation could increase their equipment costs or push up interest rates. On the other hand, utilities’ domestic focus and steady demand make them something of a safe haven, the sector produced a gain in Q1 while the broader market fell (Utilities Sector Shines as XLU Outpaces Broader Market), showing that many investors view it as a shelter in the ongoing trade storm.
Finally, we are thinking about increasing our defensive holdings with our utility holding, American Water Works (AWK), by possibly adding more shares. AWK is the largest U.S. water utility and has a reputation for resilience because it provides an essential service and has delivered steady earnings and dividend growth over the years. Historically, AWK has risen during downturns, and last quarter, it surged ~19% while the market slumped. Given this strong defensive track record, adding to AWK would help cushion our portfolio if the economy continues to decrease while still offering solid long-term growth.
Benchmark XLU (%): -4.46%, XLE: -14.36%, XLB: -8.50%
Biggest Winner (%): AWK +0.68%
Biggest Loser (%): CRS -16.34%
Financials
The financial sector took a heavy hit this week as Trump’s tariff announcements caused a $5 trillion Wall Street sell off on Friday. Goldman Sachs estimated that the US GDP would take a hit of 0.1%-0.3% ($28-$83 billion) in 2025, which raised the odds of Fed rate cuts to stimulate growth. Goldman forecasts three cuts in 2025, which could ease pressures on the financial sector.
Robinhood pushed aggressively into wealth management and private banking, launching new services this week to capture a broader retail finance market. The rollout included "Robinhood Strategies," a wealth management tool with a 0.25% annual fee (capped at $250 for Gold subscribers), and plans for AI-driven investment tools in 2025, aiming to rival traditional firms. However, the tariff shock slashed its stock by 10% on Thursday, reflecting investor concerns over economic slowdowns impacting trading volumes and growth plans.
PayPal faced a brutal sell-off, with its stock dropping 8% on Thursday as tariff-driven recession fears hit fintechs tied to consumer spending. Analysts flagged rising delinquency risks in a potential downturn, pressuring its valuation amid a broader fintech rout. Despite no specific product updates this week, PayPal’s exposure to discretionary spending and credit trends left it vulnerable.
Leveraged finance markets stalled, with junk bond issuance drying up and banks like JP Morgan holding unsold debt worth billions. Goldman Sachs struggled with a weak IPO pipeline, earning just $6 million from the CoreWeave IPO last week, far below typical fees.
XLF: -10.18%
Biggest Winner (%) - CIB (-8.56%)
Biggest Loser (%) - HOOD (-17.68%)
Healthcare
Despite the sector’s defensive nature, Healthcare experienced significant declines last week after Wednesday’s post-market Liberation Day announcement. We saw losses of 10.25% in Eli Lilly (LLY), 8.70% in Merck (MRK), 4.09% in Amgen AMGN), and one gainer in UnitedHealth Group (UNH) at 1.25%. The XLV index was down 6.39%.
LLY, MRK, and AMGN all have significant international presence, meaning reciprocal tariffs resulting from Wednesday’s announcement could create major headwinds for international sales. MRK was already concerned with slowing sales of Gardasil in China this year, and prolonged tariffs at the currently proposed magnitude would put further pressure on the company’s #2 revenue driver. While Wednesday’s Fact Sheet indicated that pharmaceuticals would be temporarily exempt from the tariffs, there is heightened uncertainty surrounding US tariffs and foreign nations’ responses in-kind.
Additionally, LLY and its competitor Novo Nordisk (NVO) fell after hours on Friday following an announcement that the current US administration would not be following through on a Biden era proposal to allow Medicare coverage for anti-obesity drugs. Both companies have been ramping up their direct-to-consumer (DTC) options, likely in anticipation of this event.
Hims & Hers Health (HIMS) was rumored to have signed a deal with LLY allowing the company to sell a white label version of the GLP-1 Zepbound (tirzepatide). LLY said in a press release that they have no affiliation with HIMS and encouraged potential customers to try their own DTC webpage. This announcement indicates that customers buying tirzepatide through HIMS would be paying nearly triple the cost compared to Lilly Direct.
The Federal Trade Commission’s case against Pharmacy Benefit Managers (PBMs): Optum Rx (UNH), Express Scripts (CI), and CVS Caremark (CVS) for artificially inflating the price of insulin, was paused for 105 days, with an evidentiary hearing set for 225 days after the pause ends. PBMs generally make money based on a spread from the rebate they negotiate with drug manufacturers. If tariffs cause higher drug prices, PBMs will likely earn more money on the same % spread.
Many solid companies (in the Healthcare sector and beyond) are going on sale at the moment. Tremendous negative sentiment does not phase us as we seek to add high quality companies to our holdings at fair or discounted prices.
Benchmark XLV (%): -6.39%
Biggest Winner (%): UNH +1.75%
Biggest Loser (%): LLY -10.25%
Industrials
This week, the Industrials sector faced heightened volatility, with the XLI falling more than SPX. Our industrials’ holdings remained more resilient, fell (6.55%) versus the XLI’s (9.38%) decline.
The industrial’s sector was particularly sensitive to the volatility attributed to the tariff announcements. Additionally, the ISM manufacturing report came in below estimates at 49, falling back into contraction territory. This signals further hardship for the already sluggish sector. The ISM prices paid came in significantly over estimates as well, pointing to rising input costs. The new orders index has slumped as well. Recent announcements and data releases have plummeted sentiment in the industrials sector, and may pose major headwinds for the sector looking forward.
The most notable losses in our portfolio can be attributed to SWK, falling nearly 20% on the week. The company had a negative reaction to the tariff announcements, as they import a significant portion of their products, particularly from China. This was followed by 3M and ERJ, both with losses of around 10%. Lockheed Martin remained resilient, only falling roughly 1.30% despite broader market volatility. The defense industry has remained strong, as geopolitical conflicts remain unresolved and we see rising defense budgets among allied nations.
Looking forward, we will continue to monitor opportunities amidst the market decline to find high-quality companies at attractive valuations. Embraer has experienced over a 25% decline since its recent high, and we may soon find an opportunity to add to the position. We will also have to make a critical decision on SWK, which continues to face setbacks and underperform. Next week, we will watch the CPI release and continue to gauge the health of the industrials sector.
Benchmark XLI (%): -9.23%
Biggest Winner (%): LMT -2.12%
Biggest Loser (%): SKW -17.73%
Technology
The tech sector endured a sharp downturn this week as U.S.–China trade tensions escalated, triggered by President Trump’s announcement of sweeping “Liberation Day” tariffs. These levies, starting at 10% and rising to 54% for certain countries, sparked a broad market sell-off. The Nasdaq Composite dropped nearly 6% in its worst day since 2020, and the XLK tech ETF fell 6.8%. Semiconductor and high-growth stocks were hit hardest—AMD sank 16% for the week, and Taiwan Semiconductor (TSMC) dropped around 9% due to fears over chip costs and export tariffs. Even major players like Alphabet and Microsoft saw moderate declines, though their diversified revenue streams provided relative stability.
China’s retaliation with 34% tariffs on U.S. goods and new export controls deepened market anxiety, sending Chinese tech names like the KWEB ETF down sharply. The Nasdaq-100 officially entered bear market territory, down more than 20% from its recent peak. Investors shifted away from high-valuation software and chip stocks, though some names held their ground. Microsoft, for example, celebrated its 50th anniversary with an AI-focused event and was added to RBC’s “Top Picks” list, while Toast showed surprising stability, likely thanks to its niche exposure. Despite the sharp sell-off, there were no major negative developments from companies like CrowdStrike or Adobe, which fell primarily due to broader sector rotation.
Looking ahead, we remain cautiously optimistic. While volatility may persist, we are closely monitoring key names like TSMC, Microsoft, and Alphabet for signs of recovery and long-term growth potential. Their strong fundamentals, innovation pipelines, and strategic positioning in AI, cloud, and semiconductor infrastructure keep them on our radar as potential rebound leaders once macroeconomic headwinds ease.
Benchmark XLK (%): -11.33%
Biggest Winner (%): MSFT -5.01%
Biggest Loser (%): AMD -16.92%
Risks and Opportunities
Risks:
The ongoing trade war and escalating geopolitical tensions are introducing significant risks to the global market. Reduced international trade and rising prices due to tariffs negatively impact consumers and corporate margins. As uncertainty grows, investors are demanding a higher risk premium in the equity markets. Tariffs, in particular, act as a drag on economic efficiency and consumer welfare, making them a net negative for both trade and end-users.
Another key concern this week is the slowdown in economic growth. Following the fastest rate hike cycle in modern history, the effects of tightening liquidity might be beginning to ripple through the broader economy. These delayed consequences could lead to further market volatility and constrained credit conditions.
Additionally, extended valuations and optimistic growth projections, especially among large-cap U.S. equities, pose risks to market sustainability. The recent rally in these stocks has pushed valuations to levels that require near-perfect execution and continued economic resilience to justify. If these expectations fall short, it could result in a repricing of equities and increased downside risk.
Opportunities:
With the current decline in stock prices, there is an opportunity to purchase equities at lower multiples. Given the potential rotation in market allocation amid a slowdown in economic growth, it is reasonable to consider where capital will flow next. The prevailing thesis suggests a shift toward value stocks and international equities, both of which are trading at lower valuations and offer more attractive entry points.
These lower prices present a compelling opportunity to deploy available cash and rotate from risk-off assets into risk-on positions in equities, allowing us to capitalize on favorable valuations and potential upside.
Conclusion
This week’s 5.54% portfolio decline, while notable, was tempered by our strategic weighting toward conservative assets like gold, Treasury bills, and bonds, which mitigated the sting of a broader market rout that saw the S&P 500 dip below 5,075 and the QQQ fall under 427. The tariff shock from President Trump’s Wednesday announcement unleashed a 10% market slide over three days, amplifying volatility and unwinding months of risk-on exuberance. Yet, amidst the chaos, signs of a potential market bottom flicker, widespread recession fears, historical patterns, and liquidity signals like Bitcoin’s resilience suggest an overreaction may be in play. Falling bond yields, a softer dollar, and cheaper oil further bolster the case for a Fed pivot, with a June 18 rate cut now fully priced in. Still, the specter of prolonged tariffs and negative GDP growth keeps recession risks alive, clouding the outlook. Moving forward, we’ll maintain a disciplined approach, eyeing international diversification to balance risk and reward, while staying nimble as the tug-of-war between slowdown fears and liquidity-driven recovery unfolds. We remain sharply alert in this ever-changing, high-pressure environment.
More to come!
-SMIF
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