Attached is an excerpt from an email I received from a trusted advisor. It gives a good perspective from both a current and historical viewpoint. I can't attach files, but the excerpt is good.
Draw your own conclusions:
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Markets are trying to assess if Trump’s announcement will trigger an all-out trade war which in turn may increase the risk of recession during an already slowing economy. Let’s start with an article from First Trust that helps explain tariffs. After explaining what tariffs are in the first few pages, page. 3 shows the impacts of Trump’s tariffs during his first term.
As you will see, they caused a lot of market volatility, especially when first announced, but in turn did not create a detrimental amount of inflation. Tariffs dominated headlines and sparked fear in markets, but with time, negotiations picked up, we had resolution, and markets were over 20% higher as a result.
Page. 7 illustrates previous US tariffs compared to our trading partners. To be clear, I don’t condone bullying our partners, but this helps illustrate the imbalance. The new tariff announcements bring levels to the highest we’ve seen since the early to mid-1900’s. I think we can all agree a lot has changed since then, but with that said I don’t see these levels sticking for very long without some sort of resolution. No one wins in a trade war.
Page. 13 shows exports as a share of GDP. The concern is that recession (two consecutive quarters of negative GDP) will be triggered. This report shows that the US has the lowest percentage of GDP reliant on exports. In other words, we have the least reliance on exports to help drive our countries growth. Other trade partners are much more impacted than the US. There are a lot of other great slides and pertinent information in this deck, I only highlighted a few main points.
The second attachment is from Fidelity Investments. In their top takeaways, they note that the “uncertainty is a bigger risk than tariffs themselves”. They also note that recession is still not their base case, although markets may remain volatile as tariffs remain a prevalent topic.
They reiterate how long-term investors should focus on overall strategic goals and diversification needs rather than reacting to short-term events or trying to trade around them. They also mention how diversification and exposure to alternative asset classes (structured products among other areas of private markets) can help provide ballast during market volatility. Again, there is a lot of other important information discussed; I simply provided the cliff notes version.
Lastly, I’ve attached JPMorgan’s 2Q Guide to the Markets. This is a 71-page release that I send out quarterly. You’ve seen a few of the slides I’ve shown before (still a nice reminder), included with a few newer ones they added.
Firstly, page. 16, an oldie but a goodie. This illustrates how intra-year declines are uncomfortable, although quite normal. This shows that the average intra year drop in the SP500 is 14.1%, however annual returns were positive in 34 of 45 years.
Staying invested and diversified is key.
Slide 20 shows consumer confidence and returns of the SP500 12 months later. I thought it was interesting to see that when consumer confidence hits lows, markets vastly outperform over the next year. Again, this illustrates how important it is to stay invested during downturns and how continuing to buy stock even though it may be uncomfortable is smart.
Page 31 is a new slide we haven’t seen before. It is a bar graph of tariffs on US imports dating back to 1930. The current tariff estimate brings these rates back to levels we haven’t seen since the mid 1900’s. It doesn’t mean these levels will be permanent, but it helps add context to the risk that markets are currently trying to price in and why we’ve seen so much volatility over the past few days.
Pg. 33 is interesting because it shows the Fed and the interest rate outlook. As you will see, they expect the Fed to lower rates 3-4 times over the next year which will provide a relief and be a tailwind for markets. Slide 51 shows similar data to the First Trust article, illustrating export exposure by country. Again, the US is among the lowest.
Lastly, page 76 shows historical data when investing at all-time highs. This slide always surprises me, as it shows that eventually, with time, all-time highs become the new market floor. The next few slides illustrate this point in more detail, showing the longer time we invest, the more predictable and stable the returns.
Investing, or judging growth on a one-year period, can lead to a vast difference in returns. They go on to illustrate a strong and resilient economy.
