Q2 2025 Client Letter

Dear Client,

It’s April 9, 2025, and already, Q1 feels like it happened in a different era.

The past few weeks have been volatile, confusing, and at times, deeply unsettling — not because we didn’t expect market choppiness, but because the velocity of change has been so extreme. As I sit here writing this letter, I’m reminded how quickly sentiment can shift — and how important it is to have perspective when it does.

We began the year with eyes wide open. In our conversations and in my year-end notes, we acknowledged the risks: inflated valuations in U.S. mega-cap growth stocks, historic levels of market concentration, and a consensus view that seemed… overly optimistic.

And yet, despite all that, Q1 began with a rotation, not a collapse. Diversified portfolios did well. International equities were strong. Fixed income stabilized. That was Phase One — healthy rebalancing.

But in late March, the story changed.

Before we dive into what’s happening now, what might happen next, and how we’re responding — here’s a quick TL;DR for those short on time.

TL;DR (Too Long; Didn’t Read)

• Q1 portfolios held up well thanks to diversification across international equities, fixed income, and value.

• We’ve now entered Phase Two — a market repricing driven by recession fears and macro uncertainty.

• Bond market volatility (MOVE Index) has surged, and credit stress is showing — possibly triggering forced liquidations.

• There is risk… but also opportunity, with many asset classes now offering far better long-term value.

• We’re actively rebalancing, harvesting losses, revisiting income needs, and exploring high-quality private markets.

• I strongly recommend reading Steve Dean’s recent article, “The Wall of Worry,” and watching our upcoming Q1 State of the Market Webinar: 👉 Watch here

Q1 Recap: The Rotation That Wasn’t So Bad

Early 2025 reminded us that valuation still matters.

The market began to rotate away from the overcrowded U.S. tech giants that had dominated returns for the past two years. In their place, capital flowed toward underappreciated sectors: international developed markets, emerging markets, value stocks, and yes — bonds.

Client portfolios, which had leaned into this diversification, outperformed on a relative basis. That was encouraging. But it was only the beginning.

Phase Two: A New Narrative Takes Hold

What started as a healthy correction quickly escalated into something else entirely: fear-driven repricing.

A wave of trade policy changes out of Washington spooked markets. Investor sentiment flipped. Recession risk spiked. Earnings expectations started to fall. And with them, so did prices — across nearly every asset class.

More troubling? Cracks began appearing in the bond market.

The MOVE Index — the bond market’s version of the VIX — surged over 38% in just a few sessions. We haven’t seen moves like this since the 2020 pandemic crash or the 2022 UK pension crisis.

What’s driving it? Likely the unwinding of basis trades, a popular hedge fund strategy that works in calm markets but unravels violently in volatility. When those trades go bad, you get forced selling. When forced selling spreads to credit, you get systemic stress.

And while all of this feels chaotic, in my opinion, it’s ultimately about China. What we’re witnessing is an attempt by U.S. leadership to confront long-standing structural imbalances in trade and capital markets. My belief is that this will eventually result in a modern-day Bretton Woods-style accord — one that creates a new free trading block among aligned nations, aimed at counterbalancing Chinese trade practices.

It’s a bold move — and frankly, a sledgehammer approach — and I have no idea whether it will succeed in its current form. But that’s the strategic endgame, and I take some comfort in knowing that Scott Bessent, one of the more respected minds in global macro and a former Soros lieutenant, is now leading these negotiations. It’s a high-stakes play, and its outcome is uncertain.

Looking Ahead: The Rest of 2025

1. Macro Environment: Slower, Stickier, Uncertain

• Recession odds have risen sharply — from 25% to 70%+.

• Inflation, while down from its peak, remains sticky in services and energy.

• The Fed is watching carefully. Markets are now pricing in up to four rate cuts in 2025, possibly more if financial conditions deteriorate.

• Any recession would likely be mild, but prolonged — more of a reset than a collapse.

2. Market Structure: Something Is Breaking

• Treasury volatility is surging.

• Hedge fund leverage (particularly basis trades) is under pressure.

• Credit spreads are widening.

• Private equity and private lending — both reliant on cheap capital — may see valuation compression and liquidity stress.

This is the kind of structural instability that often leads to policy response. It’s not irrational to expect the Fed or Treasury to step in if dysfunction persists.

3. Investment Outlook: Opportunity Emerges

It’s tempting to look at red on the screen and think: risk.

But what seasoned investors know is that risk is the price of opportunity. And right now, opportunity is growing.

• Equity valuations outside of the U.S. are attractive. U.S. small caps and value stocks are trading at steep discounts.

• Bonds are back. Yields on high-quality municipals and corporate bonds are providing real income again — something we haven’t seen in years.

• Private markets are adjusting. Dry powder will matter. So will patience.

We’re not just riding this out — we’re leaning in, with clarity and conviction.

What We’re Doing for Clients Right Now

👉 Rebalancing portfolios to take advantage of dislocation 👉 Harvesting tax losses for future tax efficiency 👉 Reviewing income distributions to preserve flexibility 👉 Increasing exposure to alternatives with low market correlation 👉 Holding strategic liquidity to take advantage of mispriced risk

We’ve Been Here Before

Investors all over mainstream and social media are panicking. Because they don’t have a plan. But you do.

You have a portfolio built for times like these — not just to withstand stress, but to adapt, evolve, and emerge stronger on the other side.

And while it’s always tempting to do something, history — and data — tell us that discipline beats reaction nearly every time. The legendary Jack Bogle once said:

“My rule — and it’s good only about 99% of the time — is when these crises come along, the best rule you can possibly follow is not, ‘Don’t just stand there, do something,’ but, ‘Don’t do something. Stand there.’”

Of course, standing still doesn’t mean we’re being passive. Quite the opposite.

Behind the scenes, we’re:

• Rebalancing into areas where opportunity has reappeared

• Harvesting tax losses to reduce your future tax burden

• Reviewing income distributions to ensure flexibility

• Building dry powder for attractive private market entries

• And stress-testing your financial plan to make sure it can weather even more challenging scenarios

This is not idle time — it’s strategic positioning. And it’s what smart investors — with advisors they trust — do in moments like these.

A Personal Update

In 2024, I made the decision to leave Miracle Mile and join Compound Planning — a platform built for independence, innovation, and fiduciary alignment.

More than 50 clients joined me on that journey. I’m grateful beyond words. Since then:

• We’ve grown to $3B+ in AUM

• Added dedicated tax and estate planning services

• Are launching a new mobile dashboard app in Q2

And as we continue to grow and scale, I’m thrilled to have added Elinoa “Ellie” Witkin to the team as a Wealth Management Associate. Ellie brings a sharp mind, a kind heart, and an exceptional ability to support clients through all aspects of their planning. Many of you have already had the pleasure of working with her — and I look forward to you getting to know her even more in the months ahead.

On the personal front — my wife and I are expecting our fourth child this July. Life is full, messy, and joyful — just like the markets.

One Final Note

During times like this, a fiduciary advisor, a thought partner, and a behavioral coach isn’t just helpful — it’s indispensable.

Too many people are trying to navigate these markets alone. They don’t have someone in their corner helping them zoom out, stay grounded, and make smart decisions.

There are many good advisors out there — but if someone in your life could benefit from the kind of guidance you receive, I’d be honored to be a resource. The long-term success of my practice will be built on quality referrals from clients like you.

Thank you in advance for the trust — and for helping me continue to build a practice centered on clarity, empathy, and great outcomes.

Let’s Connect

If you want to talk through your plan, what we’re seeing, or anything else that’s on your mind — my calendar is always open: 👉 Book a call

If you haven’t yet set up your Compound Dashboard, please do — it’s an incredible tool for organizing your finances and enhancing the advice I can provide: 🔗 demo.compoundplanning.com

Here’s to weathering the storm — and thriving beyond it.

Warmly,

Dimitry Farberov