“Maturity is the capacity to endure uncertainty”’
John Huston Finley
Our January Investment Outlook suggested we could face “unusual uncertainty” stemming from the Trump Presidency as 2025 unfolded. This prediction appears to have been accurate. The situation is unusual because politicians rarely deliver on campaign promises, in our opinion. However, President Trump is actively pursuing his agenda: implementing tariffs, deregulation, eliminating government inefficiency, ending the wars in both Europe and the Middle East, and reducing taxes in various areas. Add to this list his promise of reducing inflation.
In doing so, we are facing the unusual uncertainty we anticipated as his methods and approach to making progress on his promises is leaving many uneasy and, in some cases, fearful. Equity markets, as a whole, have seen modest declines, particularly among the Magnificent Seven, while value stocks have shown greater resilience. Fixed-income investments have posted modest gains.
Our clients with allocations to FLI’s Dividend Growth strategy and modest fixed-income portfolios have largely weathered the downdraft better than those with more growth-oriented equity strategies. While real estate investments seem to be building significant value, delays in realizing these gains have been frustrating. Nevertheless, we remain confident in the eventual outcome.
The President’s unconventional and brusque approach has created a great deal of uncertainty, as reflected by both the stock market decline from its February peak as well as a decline in the strength of the dollar, at least in the case of the Euro.
In addition, earnings estimates for the S&P 500® Index as well as U.S. GDP growth have suffered in anticipation of the meaningful impact from tariffs and a possible trade war in our opinion.
In our opinion, these potential declines appear to reflect growing concerns or a lack of confidence in domestic economic policies, particularly the seemingly haphazard and erratically evolving tariff policies. It is unclear whether these tariff decisions represent a long-term strategy as a negotiating tactic. This is particularly noteworthy because consumer spending drives a much larger portion of the economy than the manufacturing sector, which might benefit from tariff-related job creation. Despite these concerns, consumer balance sheets remain fundamentally strong, although consumer confidence has been negatively impacted.

What is not seeing the light of day are the prospects for greater certainty on prospective income and estate taxes affecting individuals, as well as possible corporate tax relief. These benefits from tax policy may need to be accelerated, given the fallout from President Trump’s aggressive tariffs. Also, we expect the deregulation efforts could have a positive economic impact. Combine that with the supposed net benefits from DOGE, and perhaps the economic future is brighter than the current gloom. Of course, much of this agenda requires legislative approval, and with Republicans holding an ultra-slim majority in the House of Representatives, uncertainty persists.
Geopolitical tensions continue to dominate headlines beyond the ongoing wars in Europe and the Middle East. Adding to these concerns are strained relations with China and the President’s expressed desire to somehow annex or take over both Greenland and the Panama Canal (we will not even discuss making Canada the 51st State). This too adds to the uncertainty investors are dealing with domestically. Global investors are also expressing concern with the U.S. as international markets are outpacing the S&P 500® Index for the first time in years.
Unusual Uncertainty Gives Way to Our Cautious Optimism
Despite the uncertainty described above, we still remain cautiously optimistic. We still believe that the earnings for the S&P 500® Index will grow, but, as we stated in last quarter’s thought piece, at a lower rate than pundits suggested at the beginning of the year.
Valuations, in our opinion, are not nosebleed by any stretch of the imagination. The price-earnings ratio of the market-cap weighted S&P 500® Index and the S&P 500® Equal Weighted Index are as follows:
These appear reasonable to us, as inflation hovers between 2.4% and 3% while the Federal Reserve is now predicting two more rate cuts before year end. We expect the 10-year U.S. Treasury yield to remain range bound between 4% and 5%. The current level of inflation and long-term interest rates are supportive of reasonable mid- to high-single-digit equity returns this year, with the market gains broadening out across more sectors.
The current “tumult” to us represents an opportunity. Once the uncertainty surrounding tariffs and tax policies clears, we anticipate improved investor sentiment and increased economic activity, including in real estate investments. While some analysts have increased the probability of recession, we maintain our view that a recession is unlikely in 2025.
Stay the Course
Despite the first quarter’s market correction, we remain confident that the long-term outlook remains positive. This confidence stems from three key factors: growing corporate earnings, increased dividend distributions, and improved cash flows from most of our investments.
We maintain our view that inflation will gradually moderate, albeit stubbornly, and expect the data-dependent Federal Reserve will reduce short-term rates later this year. Our modest exposure in some strategies to international markets is helping, as we suggested in our Annual Investment Outlook in January. The broadening out of the equity markets thus far has rewarded our clients that follow our bookend approach, which balances exposure to high-growth companies with our dependable dividend growing strategy. This, coupled with some fixed income exposure for many as well as real estate and alternatives exposure, has, to a degree, blunted the downturn.
The obvious discomfort from market corrections is difficult for almost everyone to endure. This is especially the case when it appears to be caused by a dramatic change in trade policies, somewhat draconian attempts to make the government more efficient, and ongoing negotiations with brutal dictators who disregard human life and human rights. Of course, I am talking about the current impact of the Trump Administration. The icing on this cake is the uncertainty faced by individuals and businesses regarding tax policies for the long term and the prospects of some parts of the Tax Cuts and Jobs Act of 2017 sunsetting on December 31, 2025, unless new legislation is enacted. Equity and real estate markets do not typically prosper when there is uncertainty on basic policies.
Let us not forget that sometimes short-term pain leads to long-term gain. Government efficiency is long overdue. Facing up to bullies around the world is needed, as strength can lead to peace. Tax policies that promote business growth are good, and deregulation encourages business growth. Artificial Intelligence (AI) seems to be transformative with many potential positives (although there will be some pain). Companies both investing in and benefitting from AI will likely emerge as market leaders. The Fed’s continued easing of monetary policy, if inflation remains reasonable, will also help at some point. While reciprocal tariffs may sound reasonable to some, the impact of President Trump’s tariff policies remains to be understood in terms of their impact on inflation, particularly if they result in decreased growth in U.S. GDP.
We stand by the views expressed in our Investment Outlook, despite the current unpleasantness during the first quarter. Our position remains one of cautious optimism, though we acknowledge the unusual uncertainty surrounding the Administration’s agenda. We maintain our commitment to investing for the long term, by focusing on diversified portfolios of quality companies and real estate, believing that reasonable interest rates combined with growing earnings, dividends, and cash flow will lead to investment gains. History has shown that periods of uncertainty and volatility often present prudent opportunities to invest or maintain existing investments.
Wishing you a wonderful spring season,

Robert D. Rosenthal
Chairman, Chief Executive Officer
and Chief Investment Officer
P.S. as of April 23,2025
Part 1 was written as of March 31, 2025 and prior to the President announcing significant policy changes on global trade. This tariff-driven policy has been modified in the days subsequent to its announcement. Needless to say, many of us in the investment world were taken aback by the severity of the proposed tariffs, many of which are in place, some paused to some extent, and in the case of China, significantly increased.
We believe that the boldness and unclear aspects of the tariff policy, and unresolved questions about what the President truly intends to do, leave investors, businesses, and consumers with a great deal of uncertainty. We also believe that a significant tax bill and bold deregulation may be part of the Administration’s plan for the economy. It remains to be determined as to the exact nature and possible impact of these last two components on the future economy.
We at FLI believe that a one-time inflation increase is quite possible. We also are concerned that the growing uncertainty about global trade could increase the possibility of a recession this year if prices rise and demand slows. We now estimate recession odds have increased to 50% and expect that a brief inflationary period will keep the Fed from reducing short-term rates until later in 2025 unless unemployment rises significantly.
The concept of reciprocal tariffs proposed during President Trump’s campaign might have arguably made sense, but the severity of recent measures has raised concerns among many of us. We will carefully monitor the evolving tariff policy, potential tax legislation, and regulatory changes, while providing updates on their impact on our currently stable economy.
DISCLAIMER
The views expressed herein are those of Robert D. Rosenthal or First Long Island Investors, LLC (“FLI”), are for informational purposes, and are based on facts, assumptions, and understandings as of April 25, 2025 (the “Publication Date”). This information is subject to change at any time based on market and other conditions. This communication is not an offer to sell any securities or a solicitation of an offer to purchase or sell any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Nothing herein should be construed as a recommendation to purchase any particular security. The companies and securities described herein may not be held in every (or any) FLI strategy at any given time. Investment returns will fluctuate over time, and past performance is not a guarantee of future results.
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All performance data presented throughout this communication is net of fees, expenses, and incentive allocations through or as of March 31, 2025, as the case may be, unless otherwise noted. Past performance of FLI and its affiliates, including any strategies or funds mentioned herein, is not indicative of future results. Any forecasts included in this communication are based on the reasonable beliefs of Mr. Rosenthal or FLI as of the Publication Date and are not a guarantee of future performance. This communication may contain forward-looking statements, including observations about markets and industry and regulatory trends. Forward-looking statements may be identified by, among other things, the use of words such as “expects,” “anticipates,” “believes,” or “estimates,” or the negatives of these terms, and similar expressions. Forward-looking statements reflect the views of the author as of the Publication Date with respect to possible future events. Actual results may differ materially.
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