On April 2, 2025, the President announced a major change in U.S. trade policy: a new 10% baseline tariff on nearly all imported goods. While there are many more details in the announcement, the new regimen marks a significant departure from previous, long-standing trade practices. The administration has framed this shift as a way to shrink the U.S. trade deficit (which stood at -2.8% in 2024), boost American manufacturing, and reduce our reliance on foreign-made goods.
While the administration says it’s open to negotiating, the structure of these new tariffs makes it tougher for trade tensions to cool down quickly. And while the long-term goal is to strengthen the U.S. economy, in the short term this policy could mean potentially higher prices for consumers and slower economic growth. The initial market reaction to the new tariffs has been swift and negative, with the Dow Industrials down 15% from its December all-time high. That said, we’ve built our portfolios with this possibility in mind, embracing a wide range of asset classes to help buoy returns in times of stress.
As your experienced financial advisors, we recognize these challenges can also present opportunities. In non- retirement accounts, we are tax loss harvesting by selling stocks or funds that are at a loss and replacing them with similar stocks or funds. This is an excellent method to lower year-end tax bills while staying invested in the market. More importantly, we will rebalance portfolios as asset allocations become too heavy in fixed income and underweight in equities, selling bonds at a high and buying equities at a low. This tactic positions portfolios to take advantage of market rebounds and can dramatically improve performance long term.
Although risks such as slower economic growth and rising inflation have intensified, the underlying U.S. economy remains robust. Labor markets are healthy, and corporate earnings continue to be solid. That said, what matters from here is the future impact of this new tariff policy on the economy. In our view, there is likely to be some near-term slowing in the macroeconomic data, but the jury is still out on longer-term implications. It is also important to remember that policies like tariffs don’t impact every area of the market in the same way, and we should recognize that while today’s market reaction seems myopically focused on the negative effects, there will also likely be assets that will benefit going forward.
To illustrate, see the chart above. Consider the worst 10 days in the S&P 500 since 1950, and the returns that investors received over the following 3 months and 1 year period. Each of these single-day drawdowns (the dark bars) were painful, but disciplined investors who maintained their investment plan were generally compensated over the following year (the gold bars). Investors would be prudent to remain committed to a diversified portfolio across sectors, regions, and asset classes.
It’s worth remembering that market pullbacks are a normal part of investing and often prove temporary. As Professor Jeremy Siegel tells us, “Stocks tend to be the most volatile asset class in the short run, but the most stable over the long run.”
*Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and not subject to fees. It is not possible to invest directly in an index.
Note: views are from a U.S. dollar perspective. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. Source: Kestra Investment Management with data from FactSet. Index data from January 1, 1950 through March 31, 2025.