Markets React to Tariffs: Our Perspective and Guidance

Over the past few weeks, markets have experienced significant volatility triggered by unexpected policy changes and geopolitical tensions. With headlines swirling and portfolios shifting, we wanted to offer some perspective and outline how we are thinking about this environment. 

Keep reading or watch the video below to learn more about what's been going on, what our interpretation is, and ultimately what the reasonable choices are for you and your family and portfolio.

What's Going On?

In short: A wave of new tariffs has disrupted global trade expectations. The Trump administration has enacted sweeping tariffs, including a universal 10% tax on all imported goods and significantly higher rates for key trading partners such as China (up to 67% on certain products), Taiwan, and the European Union. These changes, paired with rapidly evolving global policy, have shaken markets.

As a result, the S&P 500 fell nearly 10% in just two days, triggering a broad-based correction (Source: MassMutual Capital Markets Snapshot, 4-5-25). While we always want to remember that 15% annual drawdowns in the market are normal, unlike the recessions that followed the dot-com bubble, the mortgage crisis, or the global pandemic, the catalyst here seems largely self-inflicted. The Trump Bump in the market of 2024 has been forgotten as investors react to bigger-than-expected trade policy.

The speed of this pullback is noteworthy, but what's even more striking is the emotional whiplash it's caused. Not long ago, investors were euphoric, asking, "Why don't we just own the Index?" Now, many are wondering, "Should we even be in stocks at all?"

What Does It Mean?

These tariffs are significant enough to be restrictive to U.S.-China trade, and while we hope they don't persist in the long term, their near-term impact is meaningful.

• U.S. consumers and businesses will likely bear the brunt of rising prices.
• Earnings uncertainty will persist the longer these tariffs remain.
• Global trade retaliation appears likely, particularly from China, South Korea, and Japan.
• The risk of recession and stagflation (slowing growth and rising prices) has increased.
• Rate cuts by the Fed may be delayed if inflation persists

Source: MassMutual, Market Update, 4-4-25

Our Investment View

In the short term, economists anticipate continued downward pressure on U.S. stocks, the U.S. dollar may weaken against other currencies, and gold prices may continue to rise. (Source: First Trust, Monday Morning Outlook, 3-31-25)

With this in mind, it is also important to remember that the stock market is considered a leading indicator – it doesn't reflect where things are but where investors think they are headed. Historically, markets rally long before financial data actually improves, and instead, generally spring back rapidly as soon as there is an expectation of improvement. This is why it is so challenging to try to time the market.

The temptation in times like this is to panic, move to cash, and hit pause "until things settle down." However, the decision to abandon a well-constructed plan out of fear often leads to irreparable damage to your wealth.

Warren Buffet once said, "The stock market is the most efficient place to transfer wealth from the impatient to the patient."

What Do We Do?

How do we react when using history as a guide, rather than just the headlines, which are screaming for our attention?

1. Sell or Reposition

If you do not have adequate resources to meet your short-term needs or own speculative assets that no longer align with your confidence or goals, this may be a time to reposition. Options like high-yield savings accounts, buffered ETFs, precious metals, or guaranteed annuities can be intriguing for a portion of your portfolio.

However, be cautious about trying to exit the market and re-enter later. Timing the market requires being right twice: once with the data and once with your emotions. That's a tall order for anyone.

2. Rebalance

If your needs for growth or income are long-term (lasting more than 10 years) and your portfolio includes quality investments, rebalancing is often one of the smartest moves you can make.

This means trimming back areas that have held up better, like bonds or international equities right now, and reallocating to undervalued areas that have been hit hard. This disciplined strategy results in selling high and buying low without guessing.

3. Add Cash

If you're holding cash and have a long time horizon, this could be an excellent opportunity to add to your portfolio. As Warren Buffett reminds us: "Be fearful when others are greedy, and greedy when others are fearful."

Adding during downturns can potentially enhance long-term growth by acquiring more shares at lower prices.

4. Tax Loss Harvest

This is also a good time to review your portfolio for tax opportunities. If you're holding positions at a loss, selling them now can help offset future gains or reduce this year's taxable income without altering your long-term allocation.

Final Thoughts

If you're reading this, it's likely because you've worked with someone on our team who's helped you define your most important long-term financial goals. You've made a plan. You're invested in a broadly diversified portfolio designed not for next month or next year but for the next decade (or two or three). And up until recently, you were likely happy with your progress.

Now comes the whisper: "This time is different." And in some ways, sure, it always is. Every crisis has its own flavor. In just the first 25 years of this century, we've lived through four major bear markets, each with its own cause. However, here's the thing: none of them – not the dot-com boom, not the financial crisis, not COVID-19, not today – have been different enough to derail the long-term progress of innovation, entrepreneurship, and the profitability of great companies.

Here's just one example: at the end of 1999, the S&P 500 sat at about 1,500 before the dot-com bubble burst. Today? Even after last week's sell-off, it's over 5,000. And the dividends those companies pay? They've more than quadrupled. (Sources: FedPrimeRate.com and multpl.com S&P 500 Dividend by Year)

There is no crystal ball, and past performance does not guarantee future results. But if you zoom out, it's hard to ignore this simple truth: Those who stayed the course have been rewarded. Those who panic often regret it.

If you're feeling nervous, you're not alone, and you're not weak. That's just being human. However, acting on that fear, especially when it means abandoning a long-term plan in the face of short-term uncertainty, is rarely a good idea.

Helping you recognize the difference between feeling fear and acting on it is one of the most important reasons we do what we do for you and your family.

If you're concerned, let's talk. That's what we're here for.

Thank you for being our clients. It is a privilege to serve you.

Your team at Spaugh Dameron Tenny

Past performance is not indicative of future results. Indexes are unmanaged. You cannot invest directly in an index.

S&P 500 Index includes approximately 500 leading companies that covers approximately 80% of available U.S. equity market capitalization.