Tariff announcements earlier this week caused a stir among markets. The post-election “sugar high” has been erased, and markets are left to cope with uncertainties of which policies will be enacted next. In truth, the uncertainty of policy is more dangerous than the tariffs themselves. Markets can cope with good and bad news – but uncertainty provides the breeding ground for fear. Fear in turn provides a risk-off sentiment and markets have reacted.
For more on tariffs we turn to our partners at Capital Group and their “Guide to Tariffs”. In short, the fears can be summarized as a policy that attempts to force trade partners into more favorable trade policy. The result is the potential for slowing economic growth, possible resurgence of inflation, and weakened global cooperation. In the short term, markets will seek to find direction and a bottom for support. Bonds have weathered the storm well, and quality value driven companies are lesser effected. The most globally driven companies are suffering the worst at present with sentiment shifting towards a balanced and defensive posture.
As we work with our research partners to provide guidance, we are reminded of core investment principles. Rebalancing late last year to keep strategies diversified has allowed us to mitigate the volatility in the US stock market. Providing stability through other investment vehicles such as fixed income, alternatives and international will continue to be part of our plan to mitigate risk. We have actively trimmed US equity exposure in anticipation of uncertainty and have tilted toward quality as a remedy to limit downward pressures. At the moment, policy is driving market movement – we remain optimistic over the long term that clarity will emerge.
As a reminder, we entered the year with a positive overall outlook. Economic estimates point toward growth, unemployment levels are well within normal ranges, the promise of decreasing interest rates seems to be closer rather than further, and those indicators bode well for growth. Though the current times feel uncertain, we will continue to look for entry points of opportunity. Patience is going to be extremely important to avoid long term investment mistakes.
Respectfully,
Jay