Along with most Americans, we’ve been watching closely as President Donald Trump announced broad tariffs earlier this week. These tariffs, which include a 10% duty on all imports to the U.S. and meaningfully higher rates for some countries in particular, have had an immediate negative impact on the equity markets and led to concerns about a potential recession and increased market instability.  During this time of uncertainty, we wanted to reach out and offer some perspective and reassurance.  

Portfolio Diversification

The recent pullback in the markets has had an outsized effect on the public US stock market.  However, we design portfolios to be diversified across asset classes, sectors, and regions and specifically includes asset classes that are less correlated with the US stock market.  Some of these asset classes (e.g. bonds) have actually increased in value since the tariffs announcement, while others (such as international markets) have only experienced modest declines.  These differences demonstrate the importance and effectiveness of being diversified.  

Economic Impact is Still Unknown

While the announced tariffs may raise the risk of recession and/or increase inflation, it’s important to note that this is still a fluid situation.  Many of the president’s previous announcements regarding tariffs have been revised or even reversed, so it is still premature to make any definitive predictions about the long-term future of the US economy or the US stock market.  

Importance of a Long-term Perspective

Although markets have experienced a variety of shocks throughout history (including geopolitical events and policy-induced volatility), investors have generally been rewarded for being patient despite the events of the day (see “Markets Have Rewarded Discipline”).  As Warren Buffett famously said, “The stock market is a device for transferring money from the impatient to the patient.”  

While the drop in the US stock market has been fairly swift over the past few days, the intra-year decline is very close to what is typical over the past 45 years.  It is common for the market to see significant intra-year drops, even though it finishes the year in positive territory most of the time (see JP Morgan’s “Guide to the Markets”).  

Although declines in your portfolio are certainly difficult to see, it is important to be patient and stay invested in order to maximize your performance.  The best days in the market are often right after the worst days and missing even a few days of strong returns can have a sizable impact on your performance (see “Reacting Can Hurt Performance”).  

We Have Your Best Interest in Mind

As always, we are actively evaluating any needed adjustments to your portfolio to take advantage of the recent volatility and better position you for success.  Your advisor and our team of investment managers will continue to monitor market conditions and be proactive in making sure your portfolio is well-positioned.  If you have any specific questions or concerns, please don’t hesitate to reach out to your advisor.