Tariffs, the markets and your portfolio

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Well, we did see this coming, right?

We know that the economy moves in cycles. We know that a climbing stock market doesn’t climb forever. It is also no secret that the remarkable growth of the stock markets in 2023 and 2024 would, at some point, end.

As we have recently emerged from the worst week for stock market losses since the beginning of the Covid shutdowns in 2020, the recent market volatility demands some consideration and a decent amount of unpacking.

Back to basics

First, let’s push aside all of our personal opinions about our current leaders in Congress and the White House.

During periods of politically-motivated divisiveness strong emotions will abound, and we know that one of the worst things we can do to our portfolios is yield to our emotions when making trading decisions.

Next, let’s consider that as with much in our lives, there are seasons and phases for everything. (Cue The Byrds “Turn! Turn! Turn!”). The economy is no different, swinging over multiyear periods from expansions to contractions and back again.

Expansionary phases of the economy are characterized by GDP growth, rising employment, and increased consumer spending. The strength of the economy over the past few years is just one of the many reasons that inflation had remained so sticky for so long.

Contractionary phases of the economy are characterized by decreased production, rising unemployment and a slow-down in consumer spending and business investment.

Just like the villain in a superhero movie is often created by the hero (maybe it’s time to rewatch the M. Night Shyamalan classic Unbreakable?), any expansion in the economy is often fueled and supported by a recent contraction.

Contractionary phases, or recessions, can pave the way for future expansionary phases by clearing out excess capacity, reducing inflation, and creating opportunities for restructuring and innovation, which can lead to a stronger, more sustainable recovery.

…not that any of this makes the pain of a slower growth period any more comfortable.

We were already headed here, just not as quickly…

At the end of Quarter 4 of last year, economic signs were already pointing to a coming slower growth period in the economy, so much so that the Federal Reserve felt sufficiently comfortable reducing interest rates twice during that period.

While Quarter 1 of this year continued to underscore that slower growth and an attendant stabilization of inflationary pressures in the high 2% and low 3% range, the Federal Reserve declined to further reduce interest rates during Q1.

Now that the president’s tariff strategy has come into focus and shocked the markets into the realization that the US will be in for slower growth this year and likely next, and probably much slower growth, this may only hasten the Federal Reserve’s rate cut regime.

Maybe this was part of the President’s plan all along, to rip off the band aid to usher in slower growth in an attempt to force the Fed’s hand to give him the lower interest rates he has long demanded?

Maybe this is part of some grand strategy that truly will repatriate manufacturing and usher in a golden era of economic growth?

Maybe he is just another power-hungry leader intent on consolidating power for his own personal gain after having bankrupted so many of his own companies over the years?

In the end, your opinion about our leaders won’t change the fact that the economy slips into and out of cycles and the stock market often follows

But what about my portfolio?

The obvious question so many of you are likely asking is, “But what does this mean for me and my portfolio?”

So much of the daily news has been about the hemorrhaging stock markets, but far fewer headlines have covered the remarkable upward lurch in bond valuations.

Remember, under your advisor’s watchful eye, your asset management strategies should only ever be built to serve your financial plan.

This means that where you are at in your life as it pertains to your need for distributions from your portfolio (either saving toward retirement or living in retirement) should ultimately drive your investment allocation.

I personally continue to be invested 100% in stocks, but I also have a longer timeline before actually using much of my savings than some folks.

Most of our clients have a balance of stocks to bonds in their portfolio, and the precipitous drop in stock market valuations this week has been offset for many of them by the marked increase in bond valuations.

When people freak out about the markets they sell their riskier assets (stocks) and buy safer assets (bonds). When you avoid tactical moves like that, as we almost always suggest our clients should, your portfolio’s performance tracks a much more stable trajectory than the headline losses you’ll see in the papers and on the news.

Don’t just take it from me…

So many publications are covering the current market volatility, so I have gathered together a few links to help wrest you from the anxiety-inducing news cycle so that you can focus on just the base facts and some additional expert guidance:

Vanguard’s Take

Kiplinger’s Take

Morningstar’s Take

Anthony M. Conte is managing partner at Conte Wealth Advisors based in Camp Hill. He can be reached at [email protected]. Registered Representative Securities offered through Cambridge Investment Research Inc., a broker/dealer, member FINRA/SIPC.

Investment Advisor Representative Cambridge Investment Research Advisors Inc., a Registered Investment Advisor. Cambridge and Conte Wealth Advisors LLC are not affiliated.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the authors and do not necessarily reflect the opinions, beliefs and viewpoints of Lehigh Valley Business or its editors. Neither author nor LVB guarantees the accuracy or completeness of any information published herein.