investment risk management Archives - Sycamore Financial Group

Third Quarter 2025 Market Commentary

Investors vs. Speculators

We’d like to start this letter by thanking each of you for being an investor. There are new speculative opportunities offered on a regular basis. These opportunities (Crypto Currencies, Alternative Investments, and Mirror Tokens, to name a few) seem initially enticing, but once you look a little deeper, the shiny sales presentation starts to fade. We’re glad you are more interested in investing in companies that have a track record of delivering steady earnings and dividend growth over a longer period. It can be a bit boring, but to borrow a quote from Will Rogers… “People should be more concerned with the return of their principal than the return on their principal.” Don’t misunderstand, we’re doing our best to increase the value of your portfolio(s) as quickly as possible, but we are also keeping a keen eye on the risk side of the equation. In 2009, most investors were focused on risk. Today, you rarely see or hear much about risk. The markets have been good for a long time, and risk no longer seems important to many investors, but it is to us. Thank you for being investors and trusting Sycamore with your investment(s). As we’ve stated before…this isn’t the Tech bubble of 1999, and unlike 1999, we are still finding many good stocks to purchase at reasonable prices. We’re aware that the future is unknown, but we remain confident in our overall economy and our ability to deliver reasonably good returns for you.

Performance and the Markets

Gross of fees, our Growth and Income Composite has gained a bit more than 9% over the past nine months. 9% is about what we’d expect during a normal 12-month period, so we’re pleased. Large technology and growth companies are continuing to be on a tear. We’re concerned a bit, and we’re keeping our heads down, but we’re not running for cover. The Magnificent Seven has skewed the S&P 500 index quite a lot, so we’ve decided to add some other index comparisons so we can all have a more balanced perspective on the markets. It’s easy to believe that what has performed well recently will continue to do the same going forward. We want to caution you against this line of thinking and remind you that for the 10-year period of 12/31/2000 through 12/31/2010, the S&P 500 index (including dividends) gained 1.41% per year, annualized. That’s about 15% total non-annualized return over the entire 10-year period. This same index has gained more than 15% per year (annualized) over the past 10 years…about 315% (non-annualized). Same index…different times and different results.

The Economy

The recent government shutdown has delayed the release of jobs and inflation data. According to the U.S Bureau of Labor Statistics, the job market, while still positive, has weakened somewhat recently, pushing the unemployment rate somewhat higher to 4.3%. The U.S Bureau of Labor Statistics has also reported that Inflation ticked up a bit as well. When we consider both, we are less optimistic about multiple rate cuts by the Federal Reserve in the next few months; however, we do think there’s a good chance that we’ll get another 0.25% rate cut in October. Keep in mind that while these numbers have been a bit negative recently, they are very good historically. There’s plenty of good news floating around these days. Monthly retail sales are at an all-time high, according to the Bureau of Census. The Federal Reserve Bank reports that our nation’s money supply is growing at a steady rate of about 6% and of course, after declining slightly during the first quarter of 2025, our Nation’s Gross Domestic Product bounced back in the second quarter, growing at an annualized rate of 3.8% according to the U.S Bureau of Economic Analysis. As we mentioned earlier, we’re adults and know the future is not assured, but at this time, we remain confident in our overall economy, and we will manage your portfolio(s) accordingly.

Thanks for your business and trust.

Sycamore Financial Group

* Data not audited
** Results reported gross of fees
*** Past performance does not assure future results. Investors cannot invest directly in the stock market indexes such as the S&P 500. Investment return and principal value of an investment will fluctuate. Investor value, when sold, may be worth more or less than its original cost.

Performance and The Markets

Hello from Sycamore,

As I compose this letter, the markets are in a state of uncertainty about a possible economic slowdown and the direction of the tariff situation. Of course, this has made the nightly news, and almost every pundit on the internet tells us how bad the situation is. At this point, we’re not certain we agree. First, economic slowdowns have always been a normal part of economic cycles, and IF we experience another slowdown, we will view that as just a part of ‘normal’. Second, let’s look at the numbers that affect you. While the general markets have sharply declined over the past few trading days, the S&P 500 is only down about 9% so far this year, and it is still up about 6% from 1 year ago. Our Growth and Income composite gross of fees has declined about 5% so far this year, and over the past year, it’s gained about 4%. Considering that our composite is up nearly 15% per year over the past 5 years, including the recent decline, we think the current correction is manageable.

We have a saying around Sycamore that goes something like this…”We don’t know when ‘IT’s’ coming or where ‘IT’s’ coming from, but we know ‘IT’s’ coming.” Well…now that ‘IT’s” here, what do we – or you as investors, do now? The answer to that question is easy because we’ve been expecting ‘IT’ and we’ve been preparing. In fact, we spend much of our time preparing our clients’ portfolios for ‘IT’. We have no control over many of the factors that can affect our economy – war, interest rates, economic policies, etc., but we do control the stocks that we hold in your portfolios, so that is where we spend much of our time. We select companies that have shown the ability to perform relatively well during both good and bad times (paying special attention to how they perform during bad times) over the long run. We refer to this as repeatability. As most of you already know, we want growth, but not if it comes with too much risk. We want you to own companies that will emerge from any slowdown or challenge, stronger and more profitable than before. All this means the answer to our question “what do we do now”, is; this has been expected, and we feel we’ve prepared, so we make no changes. Additionally, we feel you should follow our lead. You knew this was the answer all along, didn’t you!

According to the model used by the Atlanta Federal Reserve Bank, our overall economy will show negative growth of about 2.4% annualized for the 1st quarter of 2025. This does not mean we will have a recession, but if the numbers are accurate, our economy has slowed a bit. On the brighter side, housing starts, which had weakened in January, bounced back in February. Additionally, the interest rate reductions we had in 2024 should help our economy, and if a slowdown does appear on the horizon, we’d expect more rate reductions to help stimulate our economy. We’ve had reasonably good news on the inflation front recently, with the annual rate for March reported at 2.4% annualized, slightly lower than February’s 2.8%.

Purchase and Sale Activity During Q-1
Purchases – Sonoco – SON, Leggett and Platt – LEG, and Pediatrix Medical Group – MD
Sales – Berry Global – BERY

Thanks for your business and trust!

Sincerely,
The Sycamore Financial Group Team with Brent A. Yard, CFP®

* Data not audited
** This article is distributed for general informational and educational purposes and is not intended to constitute legal, tax, accounting, or investment advice.
*** Past performance does not assure future results. Investors cannot invest directly in the stock market indexes such as the S&P 500. Investment return and principal value of an investment will fluctuate. Investor value, when sold, may be worth more or less than its original cost.