Market volatility has arrived in force. A slowdown in the overall economy coupled with modest growth was the consensus expectation coming into 2025. What was not expected, however, was how much the Trump administration would lean into tariffs. During President Trump’s first term, in most instances, investors observed the administration delaying, reducing, or even removing tariffs when the stock market expressed disapproval. Olive branches from the White House sparked stock rebounds.
It appears this new Trump administration is more determined to utilize tariffs, even at the expense of economic upheaval. The resulting uncertainty in terms of where tariffs will eventually land has caused investors’ as well as business leaders angst, despite any potential benefits such as bringing some production back to onshore, enhancing national security, or raising revenue.
In such an uncertain environment, it is very difficult for economists to forecast economic growth, for analysts to predict profits, and for companies to plan. A massive amount of capital investment in artificial intelligence is still very likely to happen this year, but markets had anticipated changing regulations would spur additional business investment. Well, tariff uncertainty appears to be foiling that plan, at least for now. Add some near-term inflation uncertainty among consumers and a potential negative wealth effect (when stocks go down, consumers spend less), and the economy may slow a bit more than many had anticipated. Conditions look good enough to put recession on the backburner, but there has been enough of a slowdown to raise recession fears.
So how should investors handle this? Our first piece of advice is don’t panic. Volatility is normal. It’s like a toll investors must pay on the road to attractive long-term returns. The stock market corrects once per year on average (a correction is defined as a market decline of 10-19%) and has still achieved a roughly 10% annualized return since 1980.
It’s possible that we may be close to putting in a durable low in stocks, but before that can be determined we would still need more information about which tariffs will stick (and which will not). Investors are understandably anxious. In times like these we suggest practicing patience and allowing your time horizon to work for you, as it has done historically for investors over most long periods of time.
As always, if you would like to re-visit your own investment strategy, please book a meeting for us to discuss your situation in more detail by calling our office at 805-880-9444 or clicking HERE.
Sincerely,
Bryan Foronjy, CFP®
Principal Wealth Manager
Foronjy Financial
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