How To Think About Market Volatility

Several macro uncertainties have weighed on markets in 4Q25. In our view, emotional selling into

short-term fears can not only prove costly but also miss the opportunity to buy select stocks at compelling valuations.

Fear is in the Air

1)       Government shutdown: The record 43-day shutdown has heightened anxiety, and a second shutdown remains possible with funding only secured through Jan 31, 2026.

2)       Tariffs: Investors are seeking clarity from a major pending Supreme Court ruling.

3)       Fed rate cuts: Limited economic data from the shutdown has clouded expectations for the

Fed’s December decision.

What To Do? Extend Your Time Horizon and Stay Opportunistic

We encourage investors to think long-term. Emotional selling on short-term headlines can lock in losses, trigger taxes, and cause investors to miss opportunities to buy at discounted prices. Market pullbacks are never pleasant, but they do occur, and investors with a long-term view on risk can potentially prosper from opportunistic moves.

Our investment philosophy remains consistent.

1)       Find companies with strong balance sheets that can withstand periods of uncertainty without the need to access the capital markets.

2)       Focus on the long-term. We believe all the concerns above should be resolved within 90 days. We focus on companies that have a long-term path for substantial value creation over the next 2-3 years.

3)       Stay disciplined and focus on value. Valuation, in our view, always matters.

Clarity Will Emerge

1)  While government shutdowns are disruptive, the spending needs of the government are enshrined, and thus the vast majority, if not all, of the spending should eventually flow through the economy. 

2)  With two Fed cuts already in place, we see scenarios in which either outcome could be viewed positively. If the Fed responds to job weakness with another cut, this should support lending and capital investment growth. If the Fed does not cut, it is likely because the economy remains strong. Indeed, the real-time (i.e., not a forecast) Atlanta Fed GDPNow estimate for 4Q25 GDP is a whopping 4.22%!

3)  We believe clarity on tariffs, too, could potentially be positive for investor sentiment. If the administration prevails, a potential rebate of $2000 per person in 2026 could provide a stimulative bonanza. If they are ruled illegal, price reductions could reduce inflation and increase the ability of the Fed to continue to cut rates.

Compelling Opportunities Outside of Overvalued Large Caps

We believe the most attractive opportunities today lie in small and smid cap stocks, an area many investors have neglected while chasing large caps and the “Magnificent 7.” One area of investor fear we will not dispute is the concerns about valuation for these larger caps: We ask, does an investment in these names today aim for return-on-capital, or at best hope for return-of-capital?

Conversely, we see compelling opportunities in small and smid caps. An active approach here, in our view, is necessary to avoid non-earners and balance sheet challenged companies, but with a universe of thousands of companies to select from, we think there are abundant opportunities.

Intrigued? Reach out to us to dive deeper into the conversation.

Disclaimer: This content is for informational purposes only and is not a recommendation or advice. Investments and strategies mentioned are not suitable for all investors. Opinions are based on current market conditions and are subject to change. No one can predict or project performance, and forward-looking statements are not guarantees. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.

Rewey Asset Management is an RIA Based in New Jersey