Why Q4 Investment Portfolio Positioning Matters More Than Ever

So, perhaps now more than ever, investors should review their portfolios to ensure they have recently been rebalanced and reflect their risk tolerance. In the meantime, here are some of the worries the market will have to surmount in the second half of the year in order to continue climbing. 

Interest Rate Cuts

As expected, the Federal Reserve cut interest rates by a quarter of a percentage point (0.25%) at its meeting on September 17. The outcome was less than certain, given that inflation has been running slightly hotter than the Federal Reserve’s target in recent months. Fed officials ultimately decided that lower rates were justified due to the softer employment environment and the expectation that inflation will moderate after the impact of tariffs has passed.

Now investors can look forward to the next Fed gathering on October 28 and 29. Most economists believe the Fed will cut interest rates one more time this year. That’s certainly what President Trump would like. He has been extremely public about his desire for lower interest rates to boost the housing market and the economy. The President has threatened to fire Fed Chair Jerome Powell if he doesn’t cut rates or step down voluntarily before his term as chairman ends in May 2026. It’s certainly a developing situation worth watching. 

Tariff Chaos Continues 

Investors were just getting used to President Trump’s tariffs. He’d propose large tariff hikes with our trading partners and then negotiate a trade agreement that often included a much lower tariff rate. 

Then in late August a federal appeals court decided that the President didn’t have the authority to use emergency powers to declare many of the new tariffs he announced this year. In a seven-to-four ruling, the US Court of Appeals for the Federal Circuit upheald a lower court decision on the matter. President Trump’s camp will likely appeal the most recent decision, sending the case to the Supreme Court. 

The recent court decision creates a tremendous amount of uncertainty about both trade deals that have and have not been struck. Companies have no way to plan where to import products from, nor do they know what their imported goods will cost. And if there’s one thing markets don’t like, it's uncertainty. 

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Tax Cuts Have Arrived

One powerful tailwind is President Trump’s One Big Beautiful Bill Act (OBBBA), which was recently passed into law. The OBBBA offers a little something for just about everyone. It prevents personal tax rates from rising and offers additional tax breaks for seniors, parents, and workers who receive tips. The law reinstates the state and local tax (SALT) deduction. And under the OBBBA, companies can once again enjoy 100% bonus depreciation for property acquired after January 19, 2025. 

Geopolitical Tensions Continue

The ongoing wars between Ukraine and Russia and Israel and Gaza could increasingly involve the US. Both Israel and Russia have ignored President Trump’s urging to end the wars. Trump’s tariffs have also increased the tensions between the US and China and the US and the European Union. While shots aren’t being fired, the barbed language between the trading partners should be monitored.  

Little Room for Error 

Meanwhile, the S&P 500 has recently hit new record levels and its forward P/E is ~23.4x. That’s below compared to its record level of ~28–29× in mid-2024. In addition, the index remains extremely concentrated. The Magnificent-7—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—still make up about 34% of the S&P 500’s market capitalization. It’s an abnormally large concentration that leaves investors who own stock indexes exposed to the Mag-7’s performance. So far, earnings growth by companies in the S&P 500 and the Mag-7 have justified their lofty valuations. Looking forward, Wall Street’s analysts expect the S&P 500 earnings to grow ~14% in 2026. 

Investors should always aim to make informed decisions that weigh the risks and opportunities in the market. Our team at WHZ is here to help. Call us at (860) 928-2341 or schedule a complimentary discovery session now with our team.  Together, we can create a strategy designed to give you Absolute Confidence. Unwavering Partnership. For Life.    

Authored by Senior Partner, Chief Investment Officer Laurence Hale AAMS, CRPS®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Advisor. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084. 860-928-2341. All indices are unmanaged, and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance does not guarantee future results. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor.