In last week’s Mitch on the Markets column, I offered readers a central takeaway:
“Selling out of the market today [April 5] substantially increases the chances of being whipsawed when a rally takes hold, which again, no one can know the precise timing of.
In the current environment, the setup is that any modicum of good news on trade will factor as a positive surprise for markets going forward, which will almost certainly trigger strong moves higher. Long-term investors simply cannot afford to miss these upswings.”
What a difference a day can make.
In the days following President Trump’s April 2nd announcement, we learned that the U.S.’s new tariff rate was projected to reach approximately 25%, which blew past worst-case scenarios and even surpassed the economically catastrophic Smoot-Hawley tariff levels of the 1930s. But by April 9th, virtually all “reciprocal tariffs” were paused for 90 days. The ‘modicum of good news’ I referenced above was actually a big positive, with the worst-case scenario of tariffs being taken off the table.
There is still the China story, however. Beijing initially responded with retaliatory tariffs of 34% on the U.S. (China is the U.S.’s third largest export market), but in the days since, tariff rates have ratcheted higher. As I write, China has raised levies on U.S. imports to 84%, and President Trump has raised the tariff rate imposed on China to 125%.
What we’re left with today is a 10% universal tariff on all imports into the U.S. and an economic stand-off between the two world’s largest economies. Which is to say, investors should not necessarily expect a durable rally from here. Volatility works both ways, and we are almost certainly not out of the woods yet.
My advice to remain calm and avoid knee-jerk reactions has not changed. This is an event-driven market, meaning that asset prices are essentially in a day-to-day cycle of assessing economic policy announcements, trade negotiations, punitive actions, deals, and/or de-escalation. There is not a secret set of tools investors can use to navigate this type of market—in my view, this is a time to unwaveringly avoid guesswork and to keep focus on owning strong companies in a diversified, long-term focused portfolio.
In other words, tune out the daily noise.
Going forward from here, I again urge investors to avoid trying to guess the next move on trade or any other economic policy. Instead, focus on the big picture. Here are three key points to consider:
1. Potential for Negotiations and Concessions
As we have seen historically and in this latest installment of President Trump’s trade policies, countries may look to offer concessions that can be trumpeted as a win for the U.S., which could result in permanent moderation of the announced tariffs. If the U.S. can secure a few significant negotiations, it could ease market anxiety and potentially put more pressure on China to make a deal.
2. Consideration of Fiscal Offsets
Revenue from 10% universal tariffs could lead the Trump administration to suggest that Congress redistribute some of these funds towards fiscal easing measures elsewhere, like tax cuts, which could help bolster sentiment, GDP growth, and offer counter-cyclical measures to avoid recession.
3. A Starting Point of Strong Underlying Economic Fundamentals
Despite the tariff shock, certain underlying economic factors remain relatively healthy. The jobs market showed the hiring accelerated in March, and the unemployment rate remains at 4.2%. Households are also in strong overall financial shape, with low debt service payments as a percent of disposable income and steadily rising wages.
Now to be fair, I do not think the impact of 10% universal tariffs, a protracted trade fight with China, and uncertainty in general will have no impact on growth, consumer spending, and other key economic fundamentals. The longer these policies remain in place, the greater the likelihood we see a downshift in growth and possibly a recession in 2025. But again, all these headwinds could go away tomorrow. There is no way to know for sure.
Bottom Line for Investors
In an event-driven market, one of the biggest risks an investor can take is overreacting to a news story. We have already seen that President Trump u-turned away from the most punitive of tariff measures on Day 1 of their implementation, so it does not make sense to anchor your sentiment—or investment decisions—to headlines and especially not to worst-case scenarios. Making investment decisions based on what positive or negative surprise might come next is not only futile, but it can also do real damage to long-term returns.
Going forward, I expect market volatility to persist. After all, there are still 10% universal tariffs in place and an ongoing economic standoff between the U.S. and China. More twists and turns are likely, which makes a disciplined, diversified approach the most effective way to navigate your way through it.
DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.
This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.
The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.
The Russell 1000 Growth Index is a well-known, unmanaged index of the prices of 1000 large-company growth common stocks selected by Russell. The Russell 1000 Growth Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
Nasdaq Composite Index is the market capitalization-weighted index of over 3,300 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks, as well as limited partnership interests. The index includes all Nasdaq-listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debenture securities. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
The Dow Jones Industrial Average measures the daily stock market movements of 30 U.S. publicly-traded companies listed on the NASDAQ or the New York Stock Exchange (NYSE). The 30 publicly-owned companies are considered leaders in the United States economy. An investor cannot directly invest in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
The Bloomberg Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
The ICE Exchange-Listed Fixed & Adjustable Rate Preferred Securities Index is a modified market capitalization weighted index composed of preferred stock and securities that are functionally equivalent to preferred stock including, but not limited to, depositary preferred securities, perpetual subordinated debt and certain securities issued by banks and other financial institutions that are eligible for capital treatment with respect to such instruments akin to that received for issuance of straight preferred stock. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
The MSCI ACWI ex U.S. Index captures large and mid-cap representation across 22 of 23 Developed Markets (DM) countries (excluding the United States) and 24 Emerging Markets (EM) countries. The index covers approximately 85% of the global equity opportunity set outside the U.S. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
The Russell 2000 Index is a well-known, unmanaged index of the prices of 2000 small-cap company common stocks, selected by Russell. The Russell 2000 Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
The S&P Mid Cap 400 provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500, is designed to measure the performance of 400 mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment.
The S&P 500 Pure Value index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest value characteristics by using a style-attractiveness-weighting scheme. An investor cannot directly invest in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
