market uncertainty Tag

11 Apr NAVIGATING MARKETS AMID TARIFFS – APRIL 2025

Last week we highlighted President Trump’s proposed retaliatory tariffs. This week has quickly turned that message into old news.

To recap what has happened:

On April 2^nd, the US announced reciprocal tariffs with a very simple calculation: a 10% floor and a tariff equal to essentially half of the trade deficit the US has with the associated country.

While the market was slightly positive prior to this announcement, the reaction to larger than expected and more widespread tariffs was met with heavy selling across all markets.

This was a market shock. The selling was more initially tied to growth companies with elevated valuations. Diversified portfolios held up better due to more resilience from value and international stocks. Not to mention, fixed income acted as the safe haven that investors hope for in a diversified allocation.

The Trump administration stoked the flames of the market over the last week by saying things like the market drop was a mag-7 problem, not a MAGA problem. Or saying that markets needed to “take their medicine”. It appeared as though the administration was hostile towards wall street.

On Sunday, overnight markets were forecasting north of 5% drop with some international markets selling off more than 10% overnight. Cooler heads seemed to prevail on Monday morning, with the S&P opening down 4% (well off of the pre-market lows).

The S&P rallied on Monday morning on an unconfirmed news report that Trump was implementing a 90-day delay to tariffs. Shortly after this report, the White House denied any delay in tariffs and called the report “fake news”. Markets had a 7% swing in the matter of minutes before giving up this positive performance as the reality sank in.

On Tuesday we saw the largest intraday move in the stock market since the great recession. After starting the day positive, we finished the day sharply negative. Reciprocal tariffs went into effect Tuesday night.

In the few days before leading up to Wednesday’s announcement all markets generally traded in lockstep, with nowhere to hide. Even bonds experienced this selling pressure.

Finally, on Wednesday:

• Overnight, bond yields rallied materially. A move that is not consistent with a market selloff. There were a number of speculations – Foreign bond sellers? Bank failures? Hedge fund leverage?

• In the morning, Jamie Dimon (CEO of JP Morgan) made strong comments noting a recession is a likely outcome of the Trump tariff policy.

• That same afternoon, Trump decided to delay reciprocal tariffs for 90-days for all countries willing to negotiate. This left China as the only country facing material tariffs.

While reciprocal tariffs were paused, the 10% base tariff rate remains in place. Additionally, product and sector level tariffs remain in effect. However, Trump noted that they would consider company level exemptions from tariff policy.

Markets reacted strongly to the news of this 90-Day pause. We saw the largest intra-day market swing in history. The S&P 500 finished the day up 9.52%, the best single day performance since 2008. However, the euphoria of Wednesday wore off quickly on Thursday, with major indexes falling more than 4%.

What now?

• The 90-Day pause shows that the administration at least has a heartbeat on this tariff policy issue. It removes the biggest fear for markets which was a growing concern over the competitive positioning of the US in global trade. It shows that the administration is at least willing to work with allies, while still holding a hard stance on trade.

• It leaves investors with a high water mark on tariffs and now a near term base. While the range is wide, this is more information than we had a week ago and leads to less uncertainty. This uncertainty has been the driver of negative market performance over the last week.

• It is now clear that the main focus for the administration is China. As part of the announcement, the administration also increased the tariff on China, now sitting at 145%. China has noted that they are willing to work on a deal that is good for both sides, but will fight “to the end” if the US is not willing to work towards a compromise. Most recently, China upped tariffs on US imports to 125%.

Procyon’s Perspective

• We view the developments on Wednesday as a major positive in the trade/tariff discourse that has played out over the last week. However, material uncertainties remain in the market as it relates to the escalating trade war with China, the impact on inflation, next steps for the Federal Reserve, and earnings/guidance going forward. There is a lot that needs to be decided between now and the “end” to this trade policy. This uncertainty will continue to lead to market swings to both the upside and downside.

• Wednesday was an example of just how quickly things can change. Market reactions can be violent in times of extreme uncertainty. As long-term investors, we look for attractive entry points for positions that we want to invest in for the long term. Intraday or intraweek volatility may provide those opportunities, but making quick changes to portfolios in light of headlines and market reaction can do more harm than good.

• We continue to watch markets closely. As stated in our prior commentary, we are confident in the long-term economic future of the US. We view the developments this week as steps in the right direction, but continue to acknowledge the uncertainties that remain which can lead to future volatility.

• Finally, we continue to emphasize the importance of diversification and active management in this time period. Diversification has helped weather the storm this year and we continue to expect that going forward. While all equity markets are negative year to date, fixed income is positive, alternatives have held up relatively well, and exposure to value and international markets has provided some protection on the downside.

We will venture to keep you updated as conditions develop. Please reach out to your advisor with any concerns.

14 Mar NAVIGATING MARKET VOLATILITY AMID TARIFF UNCERTAINTY

Over the past several weeks, tariff discussions have dominated financial news, creating a climate of uncertainty that has rippled through markets. The Trump administration’s recent move to propose a 25% tariff on Canadian aluminum and steel -only to retract the decision later that same day- illustrates just how unpredictable trade policy can be.

The dynamic environment has left market participants trying to guess where these tariff talks will settle. Concerns over the potential inflationary impact of tariffs and rising recession probabilities have led to heightened volatility over the last several weeks.

Couple this rising uncertainty with historically elevated US equity valuations and you create a backdrop for a market pullback like we have seen. We have even seen some asset classes enter into correction territory (10% drawdown) with others holding up relatively well (international markets and value stocks).

At the core of this volatility is the fundamental reality that tariffs alter competitive dynamics across industries, creating both winners and losers.

Key Impacts of Tariffs on Investments

• Beneficiaries: Domestic industries shielded from foreign competition (e.g., U.S. steel producers during tariffs on foreign steel).
• Losers: Companies dependent on global supply chains (e.g., auto manufacturers using imported parts).
• Corporate Profits & Costs: Higher tariffs increase costs for companies that rely on imported materials, potentially lowering profit margins (e.g., Apple’s costs rise if tariffs on Chinese components increase).
• Consumer Spending: Higher import costs can lead to inflation, reducing consumer purchasing power, which affects retail and consumer goods stocks.
• Stock Market Volatility: Tariff announcements often lead to market swings as investors adjust expectations based on trade policies.
• Currency Movements: Tariffs can impact exchange rates, affecting multinational companies and emerging markets.

Investment Strategies Around Tariffs

While uncertainty is never comfortable, investors can take a disciplined approach to navigating tariff-driven volatility.

• Macroeconomics: For better or worse we believe tariffs are inflationary. There will be upward pressure on prices of goods related to tariffs as historically this has been the case, and we have no reason to think this time is different. Additionally, the US economy has potential to experience some bumps and bruises as a result of this transitory time period.
• Commodities & Alternatives: Some investors hedge against trade tensions with commodities, domestic-focused real estate and hedge fund exposures.
• Company Specifics: Companies with strong domestic supply chains may be less affected and more resilient. International supply chains became strained ahead of covid as a trade war had already begun and may become more strained as tariffs persist.
• International Markets: Countries facing tariffs may see slower growth, impacting investments in their markets. Furthermore, countries that are on less stable economic footing are most at risk.
• Asset Allocation: Procyon believes strongly in diversification as it remains essential as the various tariffs are renegotiated on an ongoing basis. We have already seen the benefits of diversification as asset classes have reacted vastly different in the market drawback. Growth stocks and Small Caps are down over 10% since February 18^th. Value stocks are down -5.6% and international stocks are down just -1.35%. Fixed Income markets are up over that same time period.*

Tariffs in Historical Context

While today’s trade tensions may feel unprecedented, tariffs have been a fixture of global commerce for centuries In Ancient times, tariffs existed as a way to regulate trade and raise revenue. In the 16^th-18^th century, Europe used high tariffs to protect industries and control trade with a focus on wealth accumulation. In the 19^th century, the industrial revolution sparked debate between free trade and protectionism. In more recent history, the WTO reduced tariffs globally in 1995, but trade tensions in 2018 reintroduced protectionist measures. In the U.S., tariffs are currently being deployed with two primary objectives:

• Protectionism: The US is using tariffs to communicate to neighbor nations that they need to secure their borders to the United States (International Emergency Economic Powers Act or IEEPA) due to flows of illegal drugs, undocumented immigrants and contraband.
• Trade Deficit: The US is using tariffs globally (Fair and Reciprocal Plan) to help offset trade imbalances with other nations. In January the US trade deficit was $131.4b.

President Trump’s 2025 tactics rhyme with his actions throughout 2018. We saw a similar drawdown in early 2018 as concerns over a trade war spooked markets. Over the next several months, markets remained choppy as the tug of war between US and China continued. Finally, as the threats subsided and the tariffs settled, markets rallied nicely before a December sell-off that was not trade-related.

Lessons learned from that time period still ring true today in our portfolios. Namely, the benefits of diversification, ensuring you are properly allocated according to your plan and risk tolerance, and the ability to be patient in the face of volatility.

*Source: Ycharts.com