If you’ve been watching the stock market over the past few weeks, you may be feeling uneasy. Headlines are filled with words like crash, uncertainty, and recession. It’s understandable to be concerned about market volatility, but before making any quick decisions, let’s take a step back and look at what’s happening.

Market Volatility is Driven by Fear, Not Fundamentals

Yes, markets have been down lately, but the recent decline is largely driven by sentiment, not data. The economy itself has not fundamentally changed in the past few weeks. Inflation, which was a major concern in recent years, has been steadily coming down and the Consumer Price Index is now at more normal levels. Job growth remains positive, despite concerns about a potential slowdown, and consumer spending has held steady. These are all signs of economic stability, even if the market’s reaction suggests otherwise.

Short-term market movements often feel dramatic, but they are often times emotional reactions to news headlines rather than changes in the actual economy. Investors, swayed by uncertainty and fear, sometimes overreact to policy discussions and political rhetoric. This can create sharp declines that feel much worse than they actually are in the bigger picture of long-term investing.

Political Headlines Are Creating Noise

One of the biggest drivers of recent market unease is political uncertainty, particularly discussions about tariffs. Historically, post election years bring heightened volatility as investors react to policy announcements and speculate on potential outcomes.

Right now, tariffs are dominating the conversation, but it’s important to recognize that they are nothing new and often used as negotiating tools. Trump has a history of announcing tariffs and later changing his mind, or adjusting and removing them during trade discussions. In reality, very few of the proposed tariffs have actually taken effect, and some deals have already been made. Whether these strategies ultimately help or hurt the U.S. economy remains to be seen, but the immediate market reaction is largely based on speculation, not actual economic impact.

This is a reminder that not everything you hear in the news should be taken at face value. If a report claims a policy will be completely negative or completely positive, it’s worth questioning whether that statement is based on fact or opinion. The reality is, global markets are complex, and the economy is influenced by many factors beyond just government policy.

Are Stocks Overvalued? A Closer Look at Market Valuations

A growing concern in recent months has been whether stocks, particularly those at the top of the market, are overvalued. Some valuation models suggest that the overall market is expensive. However, much of this concern revolves around the extreme concentration of the Magnificent 7 stocks—Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla.

These companies have driven much of the market’s gains in recent years and still account for more than 30% of the entire S&P 500. While these stocks have performed incredibly well, they have been priced for perfection, meaning their stock prices assume flawless growth and execution. The economy remains strong, but perfection is a difficult standard to maintain, and any sign of slowing growth or unexpected challenges can cause these stocks to decline quickly.

Revisiting Our Outlook

In our Navalign Market Outlook for 2025, we shared concerns about this concentration risk and made proactive shifts in our portfolios. We increased exposure to international investments, which have performed well so far this year, and shifted toward large-cap value stocks—companies that pay dividends and have more attractive valuations. Additionally, bonds and other fixed income investments, which had struggled in prior years, are now providing stability to portfolios. This diversification is working as intended, helping to offset some of the volatility in stocks.

It’s important to note that these portfolio adjustments were made with a long-term focus. We did not make these moves because we predicted volatility would spike in a matter of months. Instead, we positioned portfolios to be more balanced and resilient regardless of short-term market fluctuations. Looking back, these adjustments have proven to be the right moves so far this year, reinforcing the value of diversification and disciplined investing.

The Importance of Staying Invested

Market pullbacks are uncomfortable, but they are a normal part of investing. Historically, selling during a downturn often leads to missing the recovery. Some of the biggest market gains tend to follow periods of volatility, and investors who panic and move to the sidelines risk missing out on those rebounds.

For example, missing just the 10 best days in the market over the past 20 years would have cut overall returns in half. Sometimes, those best days happen right after the worst days, making it incredibly difficult to time the market successfully. While it can be tempting to move to cash during uncertain times, history shows that patience is often rewarded.

What Should You Do?

Rather than reacting to short-term swings, now is the time to stay focused on your long-term financial plan. Your portfolio was designed to withstand market ups and downs, and temporary volatility does not change your long-term goals. If nothing has changed in your financial situation, staying invested remains the best course of action.

However, if your risk tolerance or financial needs have shifted, it’s worth having a conversation. Your investment plan should be aligned with your personal circumstances, not short-term market headlines. If you have concerns, let’s discuss whether any adjustments are necessary.

Final Thoughts

The stock market is complex, and while government policies can have an influence, they do not dictate market performance. The economy is driven by many factors, including corporate earnings, consumer behavior, global trade, and Federal Reserve policy. No single person or policy can control the market’s direction.

Right now, the best approach is to stay informed, remain patient, and avoid making emotional financial decisions. History has shown that markets recover, and those who stay the course are often rewarded in the long run.