Last Wednesday, President Trump announced a 10% universal tariff, along with higher tariff rates for countries with large trade deficits or high tariffs of their own. The scope of the tariffs was more significant than expected, causing a negative global reaction and market volatility. Equity markets responded with a swift selloff, adding substantially to the down market so far this year, moving into bear market territory.
The phrase “markets hate uncertainty”, while sometimes overused, is relevant here. The scope of tariffs was unexpected, which caused an immediate reaction. The ongoing negotiations with individual countries provide further opportunities for change in the numbers, as well as possible legal challenges to the tariffs. Further uncertainty around how long tariffs will be in place, at what level, and how other countries will respond means the numerous businesses affected by tariffs can’t predict their costs, and consumers cannot predict how dramatically prices will rise.
How Do Tariffs Impact Markets?
Tariffs are a tax paid by U.S. companies that import goods from abroad. If those businesses assume that cost to avoid raising prices, their profits suffer. If they pass on the cost to consumers, purchasing power decreases, inflation rises, and reduced spending can further damage company profits. Consumer spending accounts for about 70% of the U.S. economy, so less spending means depressed economic growth. Rising inflation from higher prices could also keep the Federal Reserve from lowering interest rates, eliminating the possibility of easing monetary policy.
From a market perspective, determining a company’s profitability requires a sense of the company’s costs, what it can charge for goods or services, and how well it can sustain and grow its business. When so much of this information is unknown, that uncertainty breeds volatility in stock prices. Historically, after large market drawdowns, volatility remains high as the market attempts to find a bottom and valuations stabilize.
What’s Next for Investors?
All of this can feel extremely uncomfortable for investors. However, it remains important to differentiate between short-term drawdowns and volatility versus long-term growth and personal goals. Market volatility and economic slowdowns are a natural part of investing. As of March 31, the S&P 500 had declined 9.2% from its peak—a move that may feel unsettling but is well within historical norms. Since 1990, the average intra-year drawdown has been 9.7%.1
Consider where the market was five years ago and how remaining invested was rewarded. At that time, COVID-19 was spreading, and the US stock market dropped 34% in just 23 days. Volatility hit a record high. Yet within a year, the market had not only recovered but risen 78% from its low.2 People who sold during the panic missed a remarkable recovery.
What Are My Options?
When markets swing down, it feels important to “do something”, which leads some investors to pull their money out of the market until things calm down. However, trying to time the market has historically resulted in lower returns than doing nothing.
Consider a $10,000 investment in the Russell 3000 Index made in 2000. By December 31, 2024, that investment would have grown to $66,038. However, if that money was taken out of the index and the investor missed just the best three months of that 25-year period, the total return dwindles to $46,554, roughly a 30% difference. Looking at a much longer-term example, a $10,000 investment in the S&P 500 at the beginning of 1970 would be worth more than $3 million today. That timeframe covers eight recessions, multiple wars, extreme technological changes, and a constantly changing political environment.2
This doesn’t mean you should never change your investment allocation, however, there is a significant difference between thoughtful changes based on your long-term plan versus emotional decisions driven by short-term fear. Uncertainty is a natural a part of investing. The key is aligning your investments with your life—not reacting to the headlines. Working with a trusted advisor helps you create a personal plan that fits your goals and aligns with your values.
If you have questions about your current investment strategy or are looking for professional guidance, please don’t hesitate to reach out to us through our contact form or at (804) 285-5700.
- Fiducient-Advisors-March-2025-Market-Review.pdf
- In Shaky Times, Investors Should Hold Their Nerve | Dimensional
Heather A. Voight, AIF® | Portfolio Manager
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2024 First Quarter Market Commentary
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