Tariffs 2.0: Investor Implications
Market Volatility Returns Amid Tariff Headlines
On April 2, 2025, the President announced a change in U.S. trade policy, including new tariffs on nearly all imported goods. While there are many more details in the announcement, the new policy marks a departure from previous, long-standing trade policy. The administration has framed the policy shift as a way to shrink the U.S. trade deficit (which stood at -2.8% in 2024), boost American manufacturing, and reduce our reliance on foreign-made goods.
While the administration says it’s open to negotiating, the structure of these new tariffs makes it tougher for trade tensions to cool down quickly. The stated long-term goal is to strengthen the U.S. economy, in the short term this policy could mean potentially higher prices for consumers on certain purchases and slower economic growth.
Markets React Unevenly to Policy Shifts
Markets endured their steepest daily decline since the early days of the COVID crisis this week, as investor sentiment was rattled by new tariff announcements and heightened recession concerns. As of this writing, the S&P 500 is down 13.73% year-to-date, with the Dow and Nasdaq similarly under pressure.
Risks such as slower economic growth and rising inflation have intensified, that said, the underlying U.S. economy remains robust. Labor market conditions are healthy, and corporate earnings estimates continue to be solid. In our view, there is likely to be some near-term slowing in the macroeconomic data, but the jury is still out on longer-term implications.
At Vector, portfolio construction is purpose built with the possibility of turbulence in mind. Our philosophy includes setting aside funds for near term income needs (known as the “Assured Income” portfolio segment) and embraces a broad range of asset classes including fixed income to help buoy returns in times of stress. These assets and segments of our client’s portfolios are designed to help offset the volatility that stocks can bring. In recent weeks as stocks have taken a hit, bonds have rallied.
History Suggests Staying the Course Pays Off
To illustrate, consider the worst 10 days in the S&P 500 since 1950, and the returns that investors received over the following 3 months and 1 year period, as shown in the image below. Each of these single-day drawdowns (the dark blue bars) were painful, but disciplined investors who maintained their investment plan were generally compensated over the following year.
This material reflects conditions at a specific point in time and is not intended as a forecast or guarantee of future performance. Views are presented from a U.S. dollar perspective. Source: Kestra Investment Management, FactSet. S&P 500 index data from January 1, 1950 to March 31, 2025.
As difficult as market downturns can be, they also present opportunities.
We believe it is prudent to remain committed to a diversified portfolio across sectors, regions, and asset classes. It’s also worth remembering that market pullbacks are a normal part of investing and often prove temporary. As always, we remain committed to monitoring and navigating these challenges and are here to answer any questions or provide further insights into your portfolio.
Important Disclosures
Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and not subject to fees. It is not possible to invest directly in an index.
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