The Tariff Tornado Continues [VIDEO]

What’s Behind the Market Turbulence?

The administration’s chaotic approach to tariffs – including imposing them, suspending some and walking back others – continues to reverberate through the stock and bond markets.   The barrage of headlines has understandably fueled uncertainty.

The Trump administration’s assurances of deregulation, tax cuts and fiscal restraint have given way to worries over tariffs, spending cuts, slow growth and stagflation.  Until recently, many believed that President Trump would bend over backward to support the financial markets.  The reality is that President Trump’s top priorities are his visions for U.S. economic security and U.S. national security – both of which include tariffs on friends and foes. Short-term financial market stability appears to be pretty far down on his priority list.  

While tariffs run counter to the benefits of global free trade, there may be an argument for achieving a new degree of self-sufficiency when it comes to U.S. manufacturing capabilities, especially as China eyes Taiwan.  The administration is not alone in its desire to protect the country’s industrial base, as Canada, Europe and India (among others) have also imposed tariffs on China to fend off losing their own manufacturing capabilities.

Now, tariffs on Canada, Mexico and the European Union? This is a lot more perplexing. Perhaps negotiations could stem the flow of illegal immigrants and drugs across our borders, but the markets obviously don’t like it.    

Is This Normal and Can the Market Selloff Continue?

Market volatility is unsettling, but it is an unavoidable part of investing.  Since 1928, the S&P 500 has experienced a decline of -5% or more in 91 of the past 98 years.  What about deeper declines?  Here’s the data going back to 1942:

On March 13th, the index closed down about 10% from its February 19th high. The last time we saw a 10% correction was October 2023, more than 16 months ago and nearly on cue with the data in the chart.  At the time of this writing the S&P 500 is off about 8% from its high and down about 4% for the year. While it hasn’t been any fun, we are still within historical norms in terms of anticipated declines based on historical data.

Our client portfolios are holding up fairly well because we generally have less exposure to the big technology names that make up about one-third of the S&P 500, and we have a healthy allocation to bonds and cash. By maintaining a diversified portfolio aligned with client goals, I believe we are well positioned for whatever lies ahead.   That said, I will not hesitate to make changes and adjustments as they are needed. If you would like more details or guidance, please schedule a call.

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