Thriving in Turbulence: Why Mid-Cap Growth Stocks Offer Resilience and Value Amid Trade Policy Crosscurrents

The first quarter of 2025 was a crucible for investors, with trade policy uncertainty, tariff volatility, and shifting economic signals testing even the most seasoned portfolios. Amid this turbulence, the Thrivent Mid Cap Growth Fund (TMCGX) presents a compelling case for investors seeking growth-oriented equity exposure. While the fund underperformed its benchmarks in Q1—returning -2.21% annually versus the S&P 500's +8.25%—its focus on sector-specific resilience and valuation opportunities positions it to outperform as policy clarity emerges in Q2.

Trade Policy Uncertainty: A Catalyst for Sector-Specific Opportunity

The Q1 market environment was dominated by uncertainty over tariffs and regulatory shifts under the new administration. While large-cap indices like the S&P 500 (-4.57%) and NASDAQ (-10.42%) struggled, mid-cap growth stocks—particularly those in AI-driven industries, productivity tools, and healthcare innovation—showed relative resilience.

Why Mid-Caps Are Outpacing Large Caps:

1. Agility in Regulatory Environments: Mid-cap firms often operate in niche markets, enabling faster adaptation to policy changes. For example, AI startups developing regulatory-compliant data tools are benefiting from both the tech boom and new governance frameworks.
2. Lower Tariff Exposure: Many mid-caps rely less on global supply chains than large multinationals. The fund's focus on domestic growth sectors—such as cloud infrastructure or cybersecurity—limits direct exposure to trade disputes.
3. AI Investment Booms: The fund's portfolio includes companies capitalizing on the $146B AI infrastructure spending expected in 2025. These firms, unlike their large-cap peers constrained by legacy systems, can pivot quickly to capitalize on emerging AI applications.

Valuation Contractions: A Hidden Bull Case for Growth

The S&P 500's forward P/E ratio fell 5.93% to 20.16 by Q1's end, while its earnings yield (4.98%) surpassed the 10-year Treasury yield (4.21%)—a critical valuation crossover signaling equities may be undervalued relative to bonds. For mid-cap growth stocks, this dynamic is even more pronounced:

• Tech Sector: Mid-cap tech stocks trade at a 15% P/E discount to large-cap peers, despite faster revenue growth (12% vs. 7% in 2024).
• Healthcare: Mid-cap biotech firms, benefiting from FDA regulatory tailwinds, now offer 20% higher earnings growth than large pharmaceutical companies at comparable valuations.

Rebalance Now: The Q2 Playbook

Investors should use Q1's volatility as an entry point to rebalance toward mid-cap growth. The Thrivent fund's strategy—80% invested in companies with sustainable revenue trajectories—aligns perfectly with sectors poised to thrive post-Q2 policy clarity:

1. Tech & AI: Focus on firms like Palantir (PLTR) or Snowflake (SNOW), which are expanding AI-driven analytics for regulated industries.
2. Productivity Tools: Mid-cap SaaS companies like Slack Technologies (WORK) or Asana (ASAN) benefit from corporate IT spending shifts toward efficiency.
3. Healthcare Innovation: Exact Sciences (EXAS) or Invitae (NVTA) are leveraging genomic advancements under supportive FDA guidelines.

Final Take: Time to Double Down on Mid-Cap Growth

While Q1's underperformance may deter short-term traders, the fundamental drivers for mid-cap growth remain intact:
- Valuation: P/E contractions and earnings yield advantages make mid-caps a contrarian bet.
- Sector Tailwinds: AI adoption and regulatory support in key sectors are structural, not cyclical.
- Policy Catalysts: Q2 could bring clarity on trade policies, removing overhangs and unlocking pent-up demand.

Action Item: Rebalance your portfolio to overweight mid-cap growth stocks before Q2's policy inflection. The Thrivent Mid Cap Growth Fund's focus on sector-specific resilience and valuation discounts positions it to outperform as markets stabilize—and investors who act now can capture the next leg of growth.

Data as of June 19, 2025. Past performance does not guarantee future results. Always conduct independent research before making investment decisions.