After months of whiplash-inducing headlines about US tariffs and retaliatory measures, Wednesday marked the crescendo of the trade war saga. The reciprocal tariffs were, overall, steeper than expected, especially for China. This will lead to slower economic growth in the US as well as internationally and will raise the odds of a US recession. Furthermore, inflation will be pressured to the upside. Can a recession be avoided? Yes, provided policymakers in the White House and their counterparts abroad end up reaching compromises that lead to tariffs coming down from their currently elevated levels. The number one question mark—the outcome of trade negotiations—is inherently political, which makes it so difficult to make predictions. The worst-case scenario—maintaining the new tariff rates for all of 2025—seems unlikely. Hopefully, there will be a lessening of the trade war drama as the process shifts from confrontation toward compromise.

Our focus with clients has been on their wealth plans and making sure we had the right amounts of cash in emergency funds, along with enough in fixed income to represent several years of income needs should the markets not recover quickly.   Additionally, we made tweaks to our models earlier this year and the diversification and allocations have been holding up on the downside well, which is exactly what we want to see (very similar to 2022 where we protected much better on the downside than the broad indices). The S&P 500 is down nearly 15%, the Nasdaq down 20%, and the Dow down 11% from all time highs. But just because the indices are down at these levels doesn’t translate to your portfolio being down that much. Remember the asset classes that are working well: fixed income is up nearly 4%, broad international ex-USA is up nearly 6% for the year, and large cap value is barely down 1%. Asset allocation works.

Remember, our focus is on the things we CAN control; and over time this approach works, as no one can time the market, and more wealth plans have been ruined by getting caught up in this impossible “game”. Think back to 2020 and 2022 and how fast the market reacts and falls, and how it whips back up to even new higher levels just as fast.  Stay the course, focus on your plan (not the market), go for a walk, enjoy friends and family.  We are here for you and having conversations and strategy calls with other top advisors and economist every day- we are all over this stuff, so you don’t have to be.

If you have cash and want to take advantage of these ups and downs, please let us know. We have lots of clients with cash on hand we’ve been proactively working into the market. There’s no “perfect” way to time these ups and downs. But, if you’re a long-term investor, when the market is 15%, the chance may never come again.

 

Any opinions are those of David Adams and not necessarily those of Raymond James.  This information is intended to be educational and is not tailored to the investment needs of any specific investor.  The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including asset allocation and diversification. Past performance is not indicative of future results.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary.

Bond prices and yields are subject to change based upon market conditions and availability. There are special risks associated with investing with bonds such as interest rate risk, market risk, call risk, prepayment risk, credit risk, reinvestment risk, and unique tax consequences. To learn more about these risks and the suitability of these bonds for you, please contact our office. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.