SPECIAL MARKET UPDATE - April 3, 2025
President Trump announced a new round of tariffs yesterday, starting with a broad 10% tariff on all goods coming into the US and going up from there for various products and countries. These actions were framed as “reciprocal” tariffs, in that they were placed on countries in proportion to the tariffs those countries put on US goods. Investors weren’t happy with the announcement and markets sold off on concerns that a “trade war” may develop, leading to a more severe economic downturn, both here and globally.
So what should investors do?
Rarely is a kneejerk response the right one, so we urge investors to refrain from immediate action. Risks have certainly risen, but we urge investors to look past the short-term volatility and realize that things can change quickly and some of these tariffs can be reduced or eliminated just as quickly as they were put on.
But what if the tariffs hold?
The US economy is in a good place going into this situation, with the labor market solid and consumer spending holding up at the upper and middle levels. It’s highly likely that economic growth will slow at least temporarily as a result of the tariffs, but other countries stand to lose a lot more as their economies are more dependent on the US than the US is on them. This leads us to believe that negotiations will occur that will dampen the impact of the tariffs. But we don’t want to discount the possibility that cooler heads won’t prevail, and a trade war develops, leading to a longer economic downturn.
Trying to time these moves is nearly impossible and we don’t suggest trying. Helping to give us confidence in the resiliency of the US economy is the Federal Reserve. The Chairman noted that the Fed believes any rise in inflation as a result of the tariffs is likely a temporary one, which means that they would be comfortable cutting rates if economic growth were to fall more than currently expected. Additionally, the Administration is planning measures that should stimulate the economy, such as tax cuts and reduced regulations.
Mornings like this morning are never easy, but the Buffett saying “buy when others are fearful” seems awfully appropriate this morning. The US market has reversed from nothing could go wrong, to tariffs are going to crush the US, allowing for the potential for upside surprises, which we believe will occur. Take a longer-term view and we still believe US stocks will be higher a year from now than they are now.
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