President Trump recently introduced new tariffs on nearly all major trading partners. The administration reasoned that the tariffs will help offset trading imbalances and encourage the production of more affordable American-manufactured goods. Nearly 30% of S&P 500 sales come from overseas, with information technology, materials, communication services, consumer staples, and energy having the largest exposures, according to Standard & Poor’s. Tariffs have dominated the news cycle, with many arguments against the policy being politically charged. Still, we can acknowledge that the new tariffs significantly change the global economic system. Predictions of a trade war and bearish decline are further spurring investor concern.
Let’s discuss how tariffs have historically impacted the markets and what investors can learn from those periods.
Tariffs Aren’t New
The United States has a long history of tariffs; in fact, they were the primary source of federal revenue before the federal income tax system was established in 1913. Arguments against tariffs are that they effectively tax consumers who ultimately pay higher prices for goods. This is particularly sensitive today due to the inflation households have experienced over the past few years. History shows broad tariffs can lead to a trade war, impacting economic growth, raising costs for Americans, and increasing inflation.
While we have observed significant impacts on the stock market, it’s important to note trade policy will likely be an ongoing process with Trump enacting a 90-day pause on the majority of tariffs, with potential negotiations with individual countries to follow. Time will tell the actual impacts of these tariffs, with the general predictions including:
- Higher inflation
- Devalued dollar
- Slowed economic growth
- Increased costs of foreign-sourced components
- Less foreign competition for domestic manufacturers
Market Volatility Is to Be Expected
It’s important in times like these to remember that markets can be fragile in the short run but are resilient in the long run. Over the past century, markets have experienced significant global economic shifts, including wars, recessions, bubbles, pandemics, political change, and technological revolutions. When reviewing your investments, it’s natural to want that sinking feeling of dread to go away.
However, we’ve observed over the years that markets typically recover, sometimes at unexpected times, and investors who led with their emotions experienced the long-term impacts of panic-selling stock. We’ve seen this in early 2009 after the global financial crisis, in mid-2020 during the pandemic, in late 2022 after a technology-led bear market, and in countless other examples. We expect that trend to continue as it always has.
While volatility is to be expected, the reality is that our biases and tendencies typically guide financial decisions. From loss aversion to information overload, it’s helpful to be aware of the common behavioral traits that influence investing, especially in times of uncertainty and before they become detrimental to your portfolio.
Whether navigating “hot” trends or market volatility, it’s important to become familiar with the uncertainty inherent to the investment journey. While you can’t control every outcome, with planning, you can be prepared for the possibilities and explore clear choices when things don’t go according to plan.
Navigating Market Uncertainty: How CCMI Helps
As we review history, we’ve watched markets recover and even rise to new levels over the following years and decades. While the past is no guarantee of the future, there are many reasons to believe markets and the economy can eventually move past the current concerns.
While it’s natural to want to avoid the negative feelings of market swings, we still believe the best approach is to stick to a disciplined, globally diversified, long-term strategy — the only method that continues to work over time.
We remain focused on economic fundamentals to help our clients navigate potential risks and opportunities and guide financial strategies. Our team is committed to helping you understand the evolving investment landscape and prepare you for what’s to come. If you have questions about your investment portfolio, please get in touch with our team.
CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
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