Weekly Market Commentary (May 20-26, 2025)

1. Markets dropped over 2% due to tariffs, debt worries, and rising yields.

2. Macro noise spooked investors, but strong businesses stay steady.

3. Higher rates pressure stocks, but quality firms can handle it.

4. Tech and small caps fell hard, watch for bargains.

5. Staying calm and focused is a key investing edge.

A Wild Week in the Markets

Last week gave us all a good reminder that stocks don't just go up in a straight line. After things had been pretty quiet for a while, we saw a wave of selling that pushed the major stock indexes down by more than 2%. Small company stocks got hit even harder.

The news was everywhere: trade wars heating up again, bond prices falling, and lots of talk about America's growing debt problem. But here's what I want you to remember: if you're investing for the long run and focusing on buying great companies at fair prices, this wasn't the time to panic. Actually, it might have been a good time to start getting excited about what's coming next.

What Actually Happened

Two big things shook up the markets last week. First, President Trump announced new tariffs on smartphones and a bunch of products from Europe, which scared investors around the world. Second, Congress passed a huge tax and spending bill that would add almost $4 trillion to our national debt over ten years.

These events got people worried about inflation, rising interest rates, and whether the government can pay its bills. But let me share something important: as value investors, we don't make decisions based on political drama. Sure, these big picture events matter, but they rarely change whether a great business stays great. Our job is to tune out the noise and focus on what actually creates lasting value.

Why Interest Rates Matter (But Not as Much as You Think)

Bond prices fell last week, which means interest rates went up. This made stocks less attractive to some investors. Moody's even downgraded America's credit rating, warning about our long term debt problems.

Higher interest rates can definitely affect stock prices. But not all companies feel the pain equally. Businesses with lots of cash, little debt, and the ability to raise prices when they need to are in much better shape. For smart value investors, this environment doesn't mean "sell everything." It just means we need to be pickier about what we buy.

Who Got Hit the Hardest

Not every part of the market dropped the same amount. Tech stocks took a beating, especially those expensive ones that won't make real money for years. Investors got nervous and pulled back from risky bets, which showed up clearly in the tech heavy Nasdaq index $QQQ ( ▲ 0.19% ). Small company stocks also got crushed, with the Russell 2000 falling more than other indexes. This usually happens when investors get scared.

But here's the thing: these selloffs often create opportunities. When good companies get sold along with everything else, it opens up chances to buy quality businesses at better prices. This is when all that research you've been doing really pays off.

Good Companies Keep Being Good

Even with all the craziness, strong businesses kept doing their thing. Nvidia stayed in the spotlight as investors waited for updates on their AI business. Heico $HEI ( ▲ 1.59% ) kept performing well in aerospace. Veeva Systems $VEEV ( ▲ 19.02% ) showed how strong healthcare technology can be.

These examples prove an important point: even during rough weeks, well run businesses that deliver results continue to stand out. As modern value investors, we're looking for companies that can keep performing no matter what the market throws at them. We want strong balance sheets, growing cash flow, and real competitive advantages.

The Power of Staying Calm

One of the biggest advantages you can have in investing isn't some secret formula. It's keeping your cool when everyone else is freaking out. Market drops are uncomfortable, but they're totally normal. Warren Buffett once said he'd actually be worried if the market didn't drop 10% or more from time to time.

As value investors, we use these drops to reassess, not run away. Ask yourself: What actually changed? What stayed the same? Are there better opportunities now? Having the discipline to ask these questions and only act when it makes sense is what gives us an edge over time.

The Bottom Line

Last week showed how fast markets can change when scary headlines hit. But the main lesson remains the same: focus on quality, be patient, and let market drops work in your favor. Great businesses don't become bad businesses overnight, and short term panic often creates long term opportunities.

If you have questions about the market or want to talk through your investing approach, shoot me an email. I'm always happy to help. And if you found this commentary useful, please forward it to a friend who might enjoy it too.

Happy investing!
Josh

The information is provided for educational purposes only and does not constitute financial advice or recommendation and should not be considered as such. Do your own research.