Weekly Investment Perspective

U.S. equities suffered their worst two day drop since March 2020 late last week in the wake of Wednesday’s tariff announcements and a quick response from China to fire back with its own matching retaliatory tariff of 34% on U.S. goods. Other trading partners, including the E.U. are also planning their own countermeasures in response. Following a 9% loss last week, the S&P 500 sits on the cusp of bear market territory as it approaches a 20% decline from its peak, and the tech-heavy Nasdaq has been hit even harder with a 10% decline last week pushing it firmly into a bear market. Meanwhile, overseas markets were not spared, though they fared slightly better than U.S. equities as the MSCI All Country World ex-U.S. index shed 5% for the week. Bonds helped to cushion the blow somewhat amid falling interest rates as the Bloomberg U.S. Aggregate Bond Index gained 1.1% last week.

As of the time of this writing, last week’s announced tariffs are set to go into effect on Wednesday, April 9th. The Trump Administration has suggested that it is not deterred by the stock market reaction. President Trump reiterated Sunday night that "sometimes you have to take medicine to fix something," signaling little appetite to retreat broadly from the tariff path. However, markets turned erratic Monday after White House economic advisor Kevin Hassett suggested the Administration may implement a 90-day pause on tariffs for all countries except China. Stocks initially rallied on the possibility of a partial reprieve but reversed course as details remained unclear and other White House officials have pushed back against the notion of a pause. President Trump also threatened a 50% additional tariff on China in a continued escalation of the trade conflict.

With the trade war heating up, the corporate earnings outlook is under pressure and investors will be closely scrutinizing management commentary during corporate earnings calls that will kick off this week with several large financial bellwethers set to report results. Strategists at Bank of America recently projected a 10-15% hit to S&P 500 earnings this year from tariffs, including a direct 9% reduction alone from the U.S. tariffs on China and Chinese retaliation. In practical terms, this would erase much of the earnings growth that was anticipated for 2025, and it raises the possibility that overall corporate profits could contract if tensions worsen. That said, the U.S. private sector enters this period of policy uncertainty from a position of strength is remarkably resilient and adaptive to navigate the new rules of the road as they become clearer.

While the trade situation and ongoing negotiations are highly fluid, volatility is likely here to stay in the short-term amid the very high uncertainty and limited ability of policymakers to step in and provide offsetting support for the economy. The Trump Administration is working on pushing its tax-cut agenda through congress, but the notable deficit and government debt burden are major roadblocks to material tax cuts or any other form of stimulus.

Meanwhile, the Federal Reserve does have some capacity to ease its monetary policy through further rate cuts if the economy does start to slip into a downturn, but the central bank finds itself in a tricky position as tariffs will likely spark an uptick in inflation in the short-term and the Fed remains committed to ensuring price stability. In public remarks last week, Chairman Jerome Powell struck a measured tone, indicating it’s “too soon” to determine how the Fed will react to the trade-driven market volatility. He stressed that the central bank will act as a source of stability and not overreact to every market gyration. However, the market has dramatically shifted expectations over the last week and now reflects four rate cuts this year, most likely beginning in June.

Amid the market chaos, we did get some relatively reassuring economic data: the U.S. labor market is still adding jobs at a healthy clip, at least as of the latest report. In March, nonfarm payrolls increased by 228,000, beating consensus expectations. This indicates that prior to the recent tariff announcements, businesses were still hiring and the economy had momentum. However, it wasn’t all positive news: the strong March number was partly offset by downward revisions to January and February’s job gains (together revised lower by about 48,000 jobs). Unemployment also ticked up to 4.2% from 4.1%. So the trend in hiring is solid but perhaps a tad softer than it looked a month ago.

As we wrote in our market note last Thursday, despite the unnerving market volatility we believe that it is important to stick with a long-term financial plan and perspective, and we would emphasize the importance of staying disciplined on diversification right now. While it’s impossible to predict exactly when this volatility will subside, history has shown that disciplined investors who stay the course are rewarded when markets eventually recover. Our investment team remains focused on actions to make the most of market volatility, such as tax-loss harvesting in taxable accounts or identifying opportunities to invest in high-quality companies that have been indiscriminately sold off in the market rush. Our team remains focused on monitoring developments, managing risks prudently, and identifying opportunities for client portfolios. If you have any questions or would like to discuss your situation, please reach out.

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