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U.S. and global equity markets began 2025 on solid footing, with the S&P 500 reaching a new high in mid-February. However, within a month, markets had dipped into correction territory, driven by rising inflation concerns and, more significantly, mounting uncertainty over President Trump’s emerging tariff-based trade policy. The S&P 500 ended the quarter down roughly 4% — a relatively modest decline that, in hindsight, reflected the market’s overly optimistic expectations for a limited tariff regime, which was set to be unveiled in early April.
However, the scope and scale of President Trump’s plan, unveiled on April 2nd, significantly exceeded expectations and represented the imposition of the costliest U.S. tariff regime in over a century. This, in turn, sparked fears of an all-out trade war among the world’s largest economies, and financial markets reacted swiftly, losing more than 10% over the next two sessions. This marked the worst two-day stretch since the June 2020 Covid-related sell-off.
While President Trump and his economic advisors have made the case that his tariff-based strategy will ultimately bring manufacturing jobs back to America, the consensus among most economists and business leaders, and a growing list of Congress members, is that the result will be higher costs for U.S. companies and consumers, a decrease in U.S. competitiveness, and a net loss for the global economy as growth slows materially. Financial markets across the globe are reflecting those concerns.
Needless to say, this has been a wrenching several days for investors. What follows are a few thoughts that we hope will be helpful as you attempt to make sense of the sea of red ink that may be filling your screen this past week.
First of all, the obvious — economic uncertainty and market volatility are at painfully high levels this week as the markets continue to digest the significant change to the global trade landscape and what it will mean for consumers and businesses. There are two aspects related to these changes that are weighing heavily on markets.
Aspect 1: The expected increase to the costs of operating under the new arrangement — e.g., the tariffs themselves, reconfiguration of finely tuned global supply chains, and the possibility that companies will have to move factories onshore to remain competitive. That, of course, is part of the President’s stated strategy. We believe these costs will impact consumer pocketbooks and corporate bottom lines, both of which are a net negative for stocks, at least over the short-to-intermediate horizon.
Aspect 2: The attendant uncertainty surrounding the new policy and the time it may take for consumers, but especially businesses, to believe they are operating on terra firma. In the absence of such certainty and given the high cost of operational changes, many companies will be reluctant to make significant investments in new plants or hiring, which in turn could slow economic activity and significantly increase the prospects of a recession. Because of these concerns, several major brokerage firms this week have raised their probability estimates for a U.S. recession or lowered their expectations for 2025 GDP.
As we would expect, stock markets around the world have already begun adjusting — and painfully so — to reduced expectations for consumer spending and corporate earnings. This is what market prices do exceedingly well, by the way — adjust quickly to new information as it becomes available. Global markets fell sharply on the first trading day after President Trump’s Rose Garden announcement. Then, they plunged further on the second day when China, our largest trading partner outside of North America, announced retaliatory tariffs of 34%, increasing worries a trade war had begun. New information, new prices.
Amid all of this, it’s worth remembering that markets tend to be anticipatory and typically are not adjusting only to today’s news, but also to what they believe today’s news portends for economic activity in the months to come. With that anticipation, often comes overextrapolation — i.e., assuming that today’s news, good or bad, will continue for longer than may ultimately turn out to be the case. Because of this, markets can sometimes whistle well past what may be warranted by the actual data, especially in times of panic or euphoria. This is one reason why markets have sometimes turned so quickly in the past — because they had previously overextrapolated from prior news and data.
While this specific situation feels unique — and the particulars of it are unique in the modern era, the sense that this time is different has featured in many prior fear-filled selloffs. In 2022 and 2023, the Fed hiked the overnight lending rate an unprecedented 5.5% in 16 months, with stocks falling 25% amid fears we might be heading towards a 1970s-style stagflation. Just two years earlier, during the late winter/early spring of 2020, the Covid-induced near-shutdown of global economic activity led to a 34% sell-off over just six weeks. And in 2008, we lived through the Global Financial Crisis, the worst recession since the 1930s, and suffered through a 57% decline in equity values over the course of 18 dreadful months. Every one of these meltdowns brought with it the fear that this time really was different, just as many feel today.
And, again, while the particulars are different this time, the pattern is not: something alarming has happened or is happening right now that may have a negative economic impact on consumer confidence and/or corporate earnings. Uncertainty is high because we don’t know what will come next or how things will eventually be resolved. And, as they do, markets react (sometimes overreact) to the rapidly changing situation, often with sickening speed, as new information becomes available.
And, yet, despite the uncertainty and understandable handwringing around how things would eventually resolve, they always have. Vaccines were developed. Inflation was subdued. Panic eventually subsided, and green shoots of economic confidence emerged unexpectedly. And, in each of these cases, market recoveries occurred surprisingly faster than many might have imagined during the darkest of days.
So, what could possibly change the trajectory of the current situation for the better? While not a prediction, there is the possibility that the economic and political cost of tariffs spurs a policy pivot — whether from the administration itself or a newly assertive Congress. Or it’s possible that cooler heads prevail, and mutually acceptable trade agreements are eventually reached among the major players such that the worst of outcomes, which are in no one’s interests, are avoided. While a solution may seem hard to imagine today, economic and political pressure can serve as powerful motivators.
None of this should be taken as a prediction of a short-term resolution, but it is meant to be a reminder that in every past market downturn, there was some eventual turning point, just as there will eventually be in this one. And remember, markets tend to be forward-looking and quick-acting, so even the prospect of a resolution could potentially lead to a surprisingly quick market reversal, as we have seen in many other market downturns.
But what to do in the meantime? As hard as it may be to do, a good first step is to try to avoid obsessively focusing on market news or the short-term damage done to your portfolio by the events of the past week. In our experience, the more attention people pay to the day-to-day headlines and market gyrations — especially in difficult times like these — the more likely they are to want to make changes that are costly and adverse to their long-term financial plan. Yes, staunching the losses today may bring short-term relief, but very few investors are able to profitably pair a panic-based sale with an opportunistically timed reentry, regardless of how comforting getting out may feel in the moment. So, averting your eyes may not be the worst thing you could do.
Another worthwhile step is to focus on things you can control: maintaining an adequate cash reserve, reviewing tax-loss harvesting opportunities with your advisor, and ensuring your portfolio is well-diversified and in alignment with your overall risk profile and/or financial plan. If what has happened in the last week has filled you with dread or you feel your portfolio is no longer aligned with your current circumstances and comfort level, it would be worth scheduling a time to discuss with us.
Lastly, it’s also worth remembering that, working together, we thoughtfully and carefully selected our clients’ investment allocations based on their specific situations. We do this knowing that there could undoubtedly be situations that would dramatically roil markets, just as we have experienced this week — even if we don’t know in advance what those situations might be. And for our clients with whom we work to prepare a financial plan and/or a retirement projection, volatile periods like this are baked into our modeling process. So, unpleasant though they may be, they are not unexpected from a planning standpoint.
We sincerely appreciate the opportunity to be of service and are committed to supporting the financial futures of our clients. We know how painful episodes like this can be, so if you have questions or would like to discuss your portfolio or your specific situation, please let us know.
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Disclosure: This commentary is for informational purposes only and should not be considered investment advice. Opinions expressed herein are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Beacon Pointe has exercised all reasonable professional care in preparing this information. The information has been obtained from sources we believe to be reliable; however, Beacon Pointe has not independently verified or attested to the accuracy or authenticity of the information. Nothing contained herein should be construed or relied upon as investment, legal, or tax advice. All investments involve risks, including the loss of principal. An investor should consult with their financial professional before making any investment decisions. Past performance is not a guarantee of future results.
