On April 2, President Trump announced new tariffs on nearly all major trading partners. These tariffs are “reciprocal” in that they correspond to tariffs each country imposes on U.S. goods and are on top of previously announced duties. The average tariff rate across countries is 25%, with rates for some as high as 49%. While the implementation of these tariffs was widely telegraphed by the White House, the level and scope are greater than many investors and economists expected. The immediate market reaction was negative, with the S&P 500 declining over 3% and the 10-year Treasury yield declining to around 4%.
There are many arguments for and against tariffs, and the topic can be politically charged. Regardless of how we each feel about these measures, we can acknowledge that these tariffs do represent a significant change in the global economic system.
It’s important in times like these to remember that markets can be fragile in the short run but are resilient in the long run. Over the past century, markets have experienced significant global economic shifts including wars, recessions, bubbles, pandemics, political change, and technological revolutions.
In times of uncertainty, it can feel as if markets will never stabilize. Yet, history shows that markets can overcome even the most significant shocks, and often rebound when it’s least expected, as they did in early 2009 after the global financial crisis, in mid-2020 during the pandemic, in late 2022 after a technology-led bear market, and across countless other examples.
Having the fortitude and discipline to stay invested and stick to a personalized financial plan - or even to take advantage of more attractive valuations - is a key principle to long-term financial success.
Despite the immediate market reaction, it will take time for the true impact of these trade policy changes to play out. In recent years, investors have faced numerous market concerns including the pandemic, inflation, the possibility of a Fed policy error, recession fears, and more. Each of these challenges likely felt insurmountable at the time to some.
Yet, markets not only recovered, but rose to new levels over the following years and decades. While the past is no guarantee of the future, there are many reasons to believe markets and the economy can eventually move past the current set of concerns.
Perhaps Warren Buffett said it best in 2008, during the middle of the global financial crisis: "In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
This is a helpful reminder that although market swoons can be unsettling, history shows that keeping a long-term perspective is the best way to stay on track to achieve your financial goals.
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Chris Vernier, President