In late February, financial services firm Charles Schwab released a surprising survey result: two out of three traders believed that the stock market was currently overvalued.
Just over a month later, these traders’ opinions seem to have aged well. Stock prices are currently on the decline; in fact, March 2025 was the S&P 500’s worst month since 2022. By the same token, stock market volatility is up, reflecting concerns about slower growth and uncertainty surrounding U.S. tariff policy. Morningstar lists lower consumer confidence and slowing manufacturing activity as two more factors contributing to softening growth signals as we begin the second quarter of the year.
Stock valuations have been high, especially for some of the most popular names—Wells Fargo, EOG, and Royal Caribbean Cruises made a recent Morningstar list of “newly overvalued stocks” with large market capitalization. Furthermore, the Magnificent Seven tech stocks, including Apple, Meta, and Nvidia, still rank among the largest companies by market capitalization as of April 2025.
Meanwhile, the “Liberation Day” tariff announcement on April 2, which imposed a 10% baseline tariff on all U.S. imports and higher targeted tariffs on some of the nation’s biggest trading partners, has thrown a wrench into public markets. Mark Spindel, CIO of Potomac River Capital, described the tariffs as “bigger than anyone really expected.” Economists have forecasted potential for stagflation (a combination of inflation, high unemployment, and stagnant economic growth) as prices rise; ultimately, they say, the disruption to global trade could also crimp economic output and GDP in the long run—or even bring about a recession.
Amid all this news, stocks currently represent a greater share of household financial assets than ever (as illustrated by the graph below). On the face of it, this may seem like a hair-raising data point—but as is often the case in investing, the full picture is more complex. As individual investors, we would all do well to recall the role of rotation in volatile markets, and take advantage of this opportunity to rethink how we’re allocating our portfolios.
As we’ve just discussed, there is always a possibility that favored assets, which were previously experiencing strong returns and price appreciation, may fall out of favor and experience price declines. This can leave investors with assets that have lost value, and those who purchased the asset near the peak of its price may experience significant losses. Savvy investors may find it necessary to rotate to a different asset class if one appears overvalued.
But where to rotate? In times of stress, investors often seek “safe haven” assets like bonds and hard assets. However, these markets, too, have been upended by recent policy shifts.
Bond markets may be just as impacted by policy and interest rate uncertainty as the stock market—the yield on the 10-year U.S. Treasury note soared after the 2024 presidential election, but has since fallen. And as the Department of Government Efficiency (DOGE) seeks to rework government spending, the executive branch has floated even more extreme ways to reduce the U.S. debt burden. (As a bellwether of the world fixed income market, disruptions to the U.S. Treasury markets add significant uncertainty to all other assets.)
Hard assets, like gold, have also long been considered “safe havens” during stock market downturns. Commodity prices tend to keep up with inflation and are used as hedges in inflationary environments. Still, there are some downsides to commodities. These assets provide no yield and returns are based on price appreciation only, in some ways acting as a speculative asset.
The process of elimination leads us to private-market alternatives, such as commercial real estate, which may prove to be an investment with a difference.
Though commercial real estate values took a beating in 2024, no doubt, our thesis is clear: the asset class is largely unencumbered by many issues inherent to stocks and bonds. As we’ve illustrated before using empirical evidence, the performance of private-market real estate is decoupled from the performance of public markets, offering a diversifying element within a portfolio already allocated to public equities. No investment is without risk, but diversification, as we’ve discussed repeatedly, is time-tested advice for mitigating losses at the portfolio level.
Furthermore, real estate can capture inflation through underlying leases and lease escalation clauses—an important consideration as inflation has risen once again. In fact, real estate provided a very strong inflation offset from 1983 to 2023, since non-sector specific global property real rental growth averaged 0%.
As investors, it’s important that we stay calm during times of volatility, carefully weigh all options at hand, and demonstrate a willingness to develop new plans in response to unforeseen market trends. Commercial real estate could be part of a new plan or a reminder to reallocate based on your current plan, helping you stay cool as the heat rises.
