2025 | Q1- Feels like the first time

“Creditors have better memories than debtors.”

~ Ben Franklin

It’s certainly not pleasant, but seasoned investors know that a market seemingly drowning in uncertainty and volatility, as it is today, is a frequent, if unwelcome, visitor. As this letter went to publication, the market’s status was highly fluid, with little clarity about what to expect in the days and months ahead.

Investors were unprepared for the specific series of events that set off the latest wave of the market downturn. President Trump’s April 2^nd announcement of sweeping and severe tariffs on many key trading partners was like nothing we’ve seen in our lifetimes. Given the uncertainty that the new global trade environment created, markets reacted negatively. The president quickly pulled back on many of those announced tariffs on April 9^th, providing a temporary market reprieve but adding to the market’s recent “whipsaw” action. In many ways, this highly volatile period is not dissimilar from others we’ve experienced. The market’s sudden movements are tied to circumstances that are almost always unique and often unprecedented. Investors are usually caught off guard, as these changes are, by their nature, unpredictable. It isn’t unusual for investor fear levels to get out ahead of actual events. Nevertheless, the reaction to 2025’s market environment is, to borrow from 1977’s Foreigner pop hit, an “it feels like the first time” moment.

© Sofia Warren / The New Yorker Collection/The Cartoon Bank

Yet the current downturn follows two years of prodigious stock market returns. After such a bountiful period with limited interruptions, investors’ memories of the frequency of market corrections become foggy. The last two years topped off a solid stock market run dating back to the end of the 2007-2009 financial crisis. Perhaps recent history explains why early 2025’s correction created such a stir.

Stocks quickly turned south after the S&P 500 reached an all-time high on February 19^th. The index declined 10% in just three weeks, narrowly qualifying under the textbook definition of a correction (a 10% or more drop from market peaks). The downturn occurred amid a state of economic and geopolitical uncertainty. Just when market’s began clawing their way back, the April 2^nd tariff announcement sent shockwaves through global markets. The S&P 500 declined more than 10% in just two days and teetered close to bear market territory (a 20% drop from peaks).

In times like this, markets can become dislocated from underlying fundamentals as emotions, algorithms, and high-frequency trading drive the market’s movements. The selling has been relentless, with few corners of the equity market spared.

Corrections are common, and bear markets are more common than you may remember, but the reasons behind each one tend to differ, which, for many investors, contributes to that “feels like the first time” sentiment. Stock market corrections have occurred 34 times since 1950, roughly once every two years¹. Recently, we’ve experienced corrections even more regularly. From the end of the Great Financial Crisis in 2009, the S&P 500 dropped 10% or more 10 times, a frequency of one every 1.6 years.

Remembering why you invest in stocks amid all the market corrections is more challenging. However, the numbers are worth reviewing. For reassurance, look at the frequency and severity of corrections over the years and how the S&P 500 responded after each correction. It’s too early to know how markets will react to the current correction or if it may deepen. However, unless this time is truly different, the wealth creation and preservation formula remains the same.

Based on the price change of the S&P 500 as of April 7th, 2025.

There may be less uncertainty now than during the 2008-2009 financial crisis or the onset of the 2020 COVID pandemic because today’s risk is controllable. As evidenced by recent back-and-forth tariff declarations, these policies are written in pencil, not pen, and can be revised or repealed at any time by leaders of any country or region. These decisions can have an instant, short-term market impact in such a globally interconnected world. Markets are constantly at risk of temporary displacement. It’s all the more reason to remain committed to owning the great businesses like those that comprise MPMG’s portfolio.

History rhymes

While it may feel like the first time, today’s economic backdrop shares striking similarities to 1977, the year Foreigner’s hit song was released; it’s unsurprising if you didn’t connect these dots. After all, today’s 47-year-olds weren’t yet born in 1977, and those who may have been investors then are likely at least in their 70s now. Among the ways 1977 parallels today are:

• The economy was growing slowly, with inflation remaining elevated, a “stagflation” scenario similar to what many are speculating could be in our future.
• The U.S. faced its most significant trade deficit in history.
• Interest rates were high but only slowly receding.
• The stock market started the year negatively, with speculation that investors were overreacting to many economic and political uncertainties.

In 1977, the President of a major Wall Street firm was quoted by the New York Times, saying of the economy, “It’s like a ship that’s dead in the water. It is looking for reasons to go ahead or backward. I have never seen such a period of uncertainty.”² Even then, America appeared to be treading in unchartered waters, similar to what many perceive today.

In the decade following the uncertainty of 1977’s headlines, the S&P 500 generated a cumulative total return exceeding 300%. It was another example of how investors’ short-term fears, reflected in the market correction, masked underlying opportunities. There was more. Since the end of 1977, the S&P 500 is up more than 5,700%.

Current markets will likely face continued headwinds due to uncertainty over new trade policies, the timing of new tax legislation, and growing concerns about the level of federal government debt.

Yet history, even that of 1977, shows us that market corrections have an expiration date. Subsequently, markets always recovered, ultimately to new highs. This is not just happenstance. The stock market is more than numbers. It’s a collection of businesses that create wealth. Investors are ultimately rewarded by putting money to work in companies with a track record of growing wealth over time. This is what investing, particularly long-term investing, is all about.

Market corrections only enhance the opportunity. When stock prices decline, these same companies suddenly go “on sale”, opening the door to enhanced long-term returns.

This proves particularly rewarding for investors who can identify unique, innovative companies that are positioned to prosper over time, but happen to be available at “sale” prices due to the market’s pullback. Not all stocks will benefit. Many will be left behind. As active managers, we’re focused on identifying specific, unique companies that are well-positioned for long-term prosperity. We cannot allow short-term volatility to hinder our efforts to build long-term, sustainable wealth.

The un-magnificent seven

Loyal readers of our quarterly newsletter know we’ve spilled significant ink explaining our concerns with a cadre of wildly overvalued (in the opinion of many) stocks known as “The Magnificent Seven.” While the S&P 500 has lost 19% during this latest correction³, these beloved, seemingly “do no harm” stocks suffered far more serious declines.

It’s not the first time we’ve seen high-flying stocks reverse course and lead a downturn. The same thing occurred 25 years ago when the dot-com bubble burst. It was an era when the then-soaring technology sector took a beating. The S&P 500 hit a record high on March 24^th, 2000, and wouldn’t permanently overcome the downturn until 2013. The tech-heavy NASDAQ Composite Index peaked around the same time, a level it failed to achieve again for over 16 years. By contrast, the value-focused MPMG All Cap Value portfolio limited losses and quickly recovered.⁴

Cooler heads

Not unlike 1977’s circumstances, today’s headlines easily obscure significant developments beneath the surface.

First is that market strength has broadened. Investors should welcome a broader-based market where success isn’t limited to a handful of high-flying stocks praised as false gods. During many recent corrections, Magnificent Seven stocks were considered a safe haven from the market’s turbulence. Those days seem to be in the past.

Source: As of April 8, 2025. Tesla and Microsoft stock peaked on Dec. 17, 2024; Apple stock on Dec. 26, 2024; Nvidia on Jan. 6, 2025; Amazon and Alphabet on Feb. 4, 2025; and Meta on Feb. 14, 2025.

Second, one of the key stories that drove the market’s extended technology-infused surge has not gone away, even if the story has been relegated to the background in light of tariff developments and the repeated daily dump of news out of Washington. The artificial intelligence (AI) opportunity, in our opinion, far exceeds any threat created by shifting trade policies. This humanity-transforming revolution is happening in real time. We’ve touted in previous newsletters how AI is at the forefront of another period of groundbreaking innovation, leading to significant societal advancement. Its ultimate impact is likely to rival or exceed that of the internet at the turn of the millennium. Opportunity for investors remains significant.

Before 2025, most of the market’s enthusiasm for AI was limited to the handful of Magnificent Seven stocks that captured increasing business or the promise of new business opportunities associated with AI. Yet, as Magnificent Seven valuations went out of sight, it seemed inevitable that AI-savvy investors would begin looking to the next wave of opportunity to capitalize on the resulting seismic societal changes. The savviest investors seek out well-positioned, quality companies available at favorable valuation levels.

Several MPMG All-Cap Value portfolio stocks are poised to play instrumental roles in incorporating this transformative technology. Our clients are invested in these companies that, for now, the market in general does not yet fully appreciate:

• Corning (GLW) recently upgraded its “Springboard” plan designed to boost sales and profitability by the end of 2026, from a previous target of $3 billion in additional annualized sales to a new target of $4 billion. Corning upgraded expectations by rolling out a new generation of AI fiber and cable systems to help data centers interconnect at much faster speeds.
• BWX Technologies (BWXT) makes essential components for small modular nuclear reactors, a timely opportunity given the anticipated data center construction surge. AI-connected data centers guzzle energy and need reliable energy sources that don’t exist today. Smaller-scale nuclear facilities are likely to be an essential part of the solution.
• Qualcomm (QCOM), a semiconductor chip maker, is introducing its new X-85 modem, offering 30% faster AI inference efficiency (the ability of trained AI models to apply learned knowledge to new, unseen data). The modem is essential to an AI-powered future as users require seamless data exchange between mobile devices and base stations. The company generates nearly 20% annual revenue growth and continues operating an efficient, profitable business.
• Oracle (ORCL), a multinational technology company that emerged ironically in 1977, recently announced a $48 billion increase in its order backlog. This is for a company with annual revenues of $60 billion. The recent additions bring Oracle’s total business backlog to $130 billion. It expands year-over-year future revenue growth by 63%. The past quarter was the company’s most substantial for business bookings. There’s a strong demand for the company’s cloud infrastructure for AI training and inference. Oracle’s cloud data center infrastructure makes AI faster, cheaper, and safer.

Not only is the AI growth story currently submerged in the headlines, but the stories of businesses like these are even further lost from the front pages. Numerous attractive growth opportunities also exist among companies outside of the AI universe. Yet the financial media will continue focusing on the big-name “popular” stocks that have become household names frequently cited in today’s political headlines. However, for investors seeking the shelter of good value during volatile times, we find more attractive opportunities in less obvious stocks, with seemingly limited downside risk and tremendous upside potential. We firmly believe this is the sweet spot in today’s market for future wealth creation.

Keeping your head

There is an old saw among investors that “markets hate uncertainty,” but this phrase misses the reality that uncertainty is a constant. Successful investing is about navigating uncertainty and allocating capital to specific opportunities with limited downside and meaningful upside. While many try to be, we readily admit that we aren’t fortune tellers who can determine when the market will turn for the better. However, too many in the industry either neglect or avoid the selective and deliberate process that is the foundation of our stock selection. History shows that some of the most meaningful returns our investors experienced occurred in the wake of these uncomfortable and uncertain times.

Making sense of an increasingly complex world

We live in a time of significant geopolitical and economic uncertainty while gazing into an exciting new world tied to AI advancements. There’s a lot to take in, and sometimes, it can be hard to sort through what matters and what is just noise. We wanted to address that challenge as we prepared for this summer’s MPMG Speaker Series event. Our careful vetting process brought us to somebody who may be far from a household name but whose experience and expertise are difficult to match in addressing today’s challenges.

Our speaker is Admiral James Stavridis, who spent 37 years in the Navy, rising to 4-star Admiral at the U.S. Naval Academy. He was the longest-serving combat commandant in U.S. history, including four years as NATO’s Supreme Allied Commander. In the wake of 9/11, Admiral Stavridis was put in charge of an organization known as “Deep Blue,” recognized as the Navy’s premier operational think tank for innovation.

Admiral Stavridis is a highly respected voice of moderation who has been considered for high-level positions by both Democratic and Republican leaders in recent years. He has published 13 books, the most recent of which, 2054, focuses on artificial intelligence and geopolitics. In these times of geopolitical and technological change, we could host no more timely discussion this summer than the one we’ll have with Admiral Stavridis.

~MPMG

1 Callie Cox Media, Y Charts

2 Mullaney, Thomas, “The Economic Scene,” New York Times. May 29, 1977.

3 From February 19, 2025 through April 8, 2025

4 Full performance details and disclaimers included in the enclosed fact sheet, or visit www.mpmgllc.com/fact-sheet

Established in 1995, Minneapolis Portfolio Management Group, LLC actively manages separate accounts for individuals, families, trusts, retirement funds, and institutions. Our proven value-oriented investment philosophy has created long-term wealth for our clients.

Visit our website at: www.MPMGLLC.com

Although the information in this document has been carefully prepared and is believed to be accurate as of the date of publication, it has not been independently verified as to its accuracy or completeness. Information and data included in this document are subject to change based on market and other condition. All prices mentioned above are as of the close of business on the last day of the quarter unless otherwise noted. Market returns discussed in this letter are total returns (including reinvestment of dividends) unless otherwise noted.

The information in this document should not be considered a recommendation to purchase any particular security. There is no assurance that any of the securities noted will be in, or remain in, an account portfolio at the time you receive this document. It should not be assumed that any of the holdings discussed were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable. The past performance of investments made by MPMG does not guarantee the success of MPMG’s future investments. As with any investment, there can be no assurance that MPMG’s investment objective will be achieved or that an investor will not lose a portion or all of its investment.

Companies mentioned in this document were chosen based on MPMG’s view of the products and/or services offered or provided by the companies in light of current economic and market observations and reported trends.  For a complete listing of MPMG’s recommendations over the preceding 12 months, please contact MPMG at (612) 334-2000.