In uncertain times, it’s tempting to react hastily to market fluctuations. Peter Drucker, the renowned management theorist, once said, “The greatest danger in times of turbulence is not the turbulence, it is to act with yesterday’s logic.” This idea rings true as we look back at April’s market events, which showcased the importance of staying balanced in your investment strategy, particularly during times of volatility.

A Dramatic Month for Investors

While the S&P 500 ended April at nearly the same level as it began, this flat result hardly reflects the rollercoaster ride investors experienced. The month began with a sharp decline, sparked by President Trump’s announcement of a dramatic increase in tariffs, which immediately led to a significant drop in U.S. stock prices. On April 2, the market plunged by nearly 5%, and it continued to slide for the next few days, bringing the index down to a low of 4,983 on April 8. At the same time, bond yields spiked due to concerns about the potential inflationary impact of the new tariffs.

However, the situation reversed when the Trump administration announced a 90-day pause on the tariffs, which brought relief to the markets. On April 9, the S&P 500 surged by 9.5%, erasing some of the earlier losses. By the end of the month, the market had rebounded by 12% from the low, demonstrating the potential for sharp rallies in response to positive news.

The Importance of Balanced Positioning

The swift and dramatic changes in the market during April underscore the need for balanced portfolio positioning. Our 2025 forecast of “Clear Air Turbulence” proved to be quite accurate, as we warned clients to expect significant pullbacks in the first half of the year due to policy uncertainties. While these fluctuations can be unsettling, they also present opportunities for those who remain calm and stick to their long-term strategy.

The market experienced significant volatility in the months leading up to April, particularly between February and early April, when the S&P 500 fell by 19%. The so-called “Mag 7” stocks (the seven largest technology companies) experienced even more dramatic price swings, dropping by an average of 26.8% during this period. Conversely, more defensive sectors, such as utilities and consumer staples, performed better during the downturn.

However, the Mag 7 rebounded strongly in April, outperforming the broader S&P 500 by several hundred basis points. These dramatic shifts highlight the importance of maintaining a balanced approach to investing. When certain sectors dominate the market, it’s crucial to reassess and ensure your portfolio isn’t overly reliant on a single group of stocks, particularly as the market rotates.

The Case for Reducing Portfolio Imbalances

For months, we’ve advised clients to reduce their exposure to the Mag 7 stocks, which have seen massive outperformance in recent years. These stocks can be vulnerable during periods of market volatility, and trimming them back to more prudent levels helps mitigate the risk of sharp losses during downturns. At the same time, we still recommend maintaining positions in these stocks, as they continue to show strong earnings growth and innovation potential.

Balancing Asset Allocation Amid Volatility

When it comes to asset allocation, it’s essential to stick to your long-term plan, especially in times of market uncertainty. If recent market gains have pushed your stock allocation above your target, consider paring back to bring it back in line with your long-term strategy. With the market only down by about 5% following a 60% cumulative gain in 2023 and 2024, now may be a good time to make adjustments.

The current economic indicators present a mixed picture. On the one hand, “soft” data such as consumer and business sentiment are weak, suggesting that concerns about inflation and policy uncertainty are having an impact. On the other hand, “hard” data, including GDP growth and consumer spending, remain solid. Retail and auto sales, in particular, are strong, though there is some uncertainty about whether this strength is driven by pre-tariff purchasing. It’s too early to draw definitive conclusions, but these are factors worth monitoring.

Market Valuation and Investor Sentiment

Valuation metrics also offer some insight. The price-to-earnings (P/E) ratio for the S&P 500 has contracted from 22 to 18 this year, and the equal-weighted S&P 500, which gives more weight to smaller companies, has fallen even further. This suggests that the market has become more reasonably priced compared to earlier in the year, provided earnings don’t face significant downward revisions.

Investor sentiment is another critical factor. Right now, sentiment is bearish, similar to the market troughs seen in previous downturns. Historically, this kind of negativity can signal a market bottom, making it a contrarian indicator. However, it’s important to note that market bottoms take time to form, and we may see another test of the lows before a sustained recovery begins.

Conclusion: Patience and Balanced Positioning

As we navigate through the current market uncertainty, it’s important to avoid knee-jerk reactions or the temptation to make hasty decisions based on short-term news. Rather than following the “buy the dip” advice being touted by some, it’s wiser to stay grounded, stick to your long-term strategy, and maintain a balanced portfolio.

As Peter Drucker’s wisdom reminds us, the greatest danger during times of turbulence isn’t the turbulence itself, but the temptation to act with outdated logic. Stay patient, keep your focus on the bigger picture, and avoid the pitfalls of emotional decision-making in a time of high volatility.