The escalation of tariffs has triggered significant market volatility, with the U.S. and other global markets all adjusting to reflect the changing economic backdrop.
Tariff Causing Market Stress
The escalation of tariffs has triggered significant market volatility, with the U.S. and other global markets all adjusting to reflect the changing economic backdrop. The tariff policy’s uncertainty is causing markets to react to worst-case scenarios – higher prices, weaker growth, and the possibility of recession. This, along with changes to immigration and other regulations, creates a challenging environment for business planning.
Diversification Benefits Portfolios
With the U.S. large-cap market performing strongly last year, diversifying into other asset classes became somewhat frustrating for investors. However, domestic stocks were down during the first quarter, while bonds, foreign equities, and non-traditional assets have done much better. Diversification has helped mitigate the downside.
Federal Reserve’s “Wait and See” Approach
The Federal Reserve can lower interest rates should the U.S. enter a recession. However, they also need to balance this against rising prices that may come. Fed Chairman, Jerome Powel noted, “Inflation is going to be moving up and growth is going to be slowing, but … it is not clear to me at this time what the appropriate path for monetary policy will be and we’re going to need to wait and see how this plays out before we can start to make adjustments.”
Market Resilience
The U.S. market has experienced 26 bear markets since 1929. Our recovery records? 26 for 26. Markets can be fragile in the short run but are resilient in the long run. In the last 100 years, markets have experienced significant global shifts, including wars, recessions, bubbles, pandemics, political change, and technological change. In times of uncertainty, it can feel as if the markets will never stabilize. Yet markets overcome even the most significant shocks, as they did in 2009 after the financial crisis, in 2020 during the pandemic, in late 2022 after a bear market, and across countless other examples.
Keeping Perspective
Over the past few weeks, we’ve been hit by a deluge of new information on tariffs, retaliatory tariffs, international negotiations, and various conflicting statements by different government officials. In the days ahead, we will hear from many people, all trying to be the first to opine on every new announcement. But we do not adhere to knee-jerk responses. Successful investors have a different perspective – one that looks beyond the horizon and identifies strategies that can best position their portfolios for long-term success.