Tariffs and Handling Uncertainty

Welcome back, everyone, to our latest, you know, iteration of the podcast. It's been a busy week. Today is, we're recording on March 14th, and as of yesterday the S&P 500 was in a correction territory, and we just wanted to get together a quick video here and share some of our thoughts about, you know, the current environment and, you know, what we're talking about here at the office. So I think Will is going to kick us off with a little talk about tariffs and what's going on with that. So, Will.

Thanks, Zach, and hi, everyone. Yeah, so if you've watched the news or read anything about current events, you've probably come across some information on the tariffs. And if you've looked at your account or seen what it's done to the stock market very quickly, we've had a correction, like Zach mentioned, so 10% off of the most recent high is what that means for the S&P 500. And I'm going to share a chart here to kind of talk about how current events and near-term market impacts, and just give this situation some perspective.

So this is the long-term return of the S&P 500 going back to 1990, with the gray shaded areas are recession periods, and the white, you know, is just economic expansion. So clearly a lot more expansion than recession over the last 30 years, but also you'll see this up-and-to-the-right trend for the S&P 500. And what that means on an annualized basis, meaning year in and year out, the average return for the S&P 500 was 10.59% from 1990 through the end of last year.

And what these tabs along the chart of the S&P are, are news events that have happened along the way, just to show you that because we're learning about tariffs today, you know, this is nothing new to have a news event cause a little bit of a market correction. So looking, you know, at the most recent tabs on this chart, we had the election last year. There was some market volatility because people were concerned about who was going to be in office. Going back a few years further, 2022, we had record inflation, you know, the highest levels in I think 40 years, and as a result of that the Federal Reserve raised the benchmark interest rate to 5.5%. You know, take it back a little further, COVID-19, when the outbreak of that disease, you know, there was a market selloff.

But all that to be said, the average return over the long haul has been 10.5%. And the most recent reason to sell, or, you know, you may read that it's time to get out of the market or change your portfolio, is because of the tariffs. And just wanted to spend a little bit of time talking about those, because as we're going through a market downturn and the news seems, it's scary and unsettling, it's important to have that historical perspective. And if you weathered, you know, previous events, you know, you should think about doing the same for this one.

And it might help to understand why, you know, this administration is pursuing these policies, and we think there's a few different reasons. Maybe to shift some of the supply chains and reduce reliance on manufacturing certain things out of China. Rebalancing the economy by reducing the trade deficit. We are largely an importing nation, and we don't think that the trade, you know, running a large deficit in trade is a sustainable path forward. It could raise some revenues for the government. Tariffs are taxes, so, you know, potential way to reduce our fiscal deficit, another unsustainable thing long-term for the economy is running a large fiscal deficit. And more recently, you know, we've seen this as a negotiation tactic. Trump will threaten, and sometimes pull back, which has already happened just a few months into the year, these tariffs to bring other countries to the table to strike some sort of deal, whether it's border security or something with trade.

But all that to be said, why we're, you know, on this call is to hopefully, you know, look at this through an investment lens and not a political view. You know, whatever your political beliefs are, we don't think that should affect your investment decisions. And we think that focusing on the long term, kind of like that chart, there's always a reason to sell, is really important, especially right now. And Zach is going to talk about some different ideas and things that you can be doing within your portfolio to handle some of this uncertainty.

Yeah, thanks, B. Yeah, and I think we'll put the nail on the head that, you know, everything that's going on with this new administration has certainly caused a lot of volatility so far this year, and we've seen it in portfolios. And as we said, a correction is a 10% drop from a prior high, and they call a bear market a 20% drop from a prior high. And on average, a correction happens, like, every 12 to 16 months, if you go back over the last, like, 100 years, and they say a bear market happens every four years. And I just want to show a little bit about what's going on, you know, or what has happened so far this year.

So all of those headlines have led to, you know, concerns about, you know, the US equity markets and what has happened so far this year. And, yeah, all by all major indexes in the US, the markets have lost in value this year. So this orange line here represents the Dow Jones Industrial Average, which is probably the most quoted index, and it represents, it's supposed to be inclusive of the whole US stock market. It's made up of 30 different companies. It's kind of the oldest index going back. It has maybe a little bit more of, like, a built towards value companies versus, you know, the big technology kind of companies, but it's down about, you know, almost 2.5%.

The purple line here is the S&P 500, which is the 500 largest companies in the US by market cap. I kind of think of them as being, you know, like the major leagues of, you know, US companies. In the US overall there's about 3,500 public companies, and this is the 500 largest of those ones, so the biggest, you know, best companies in the US. It's down a little over 4%. And then you have the Invesco QQQ, which is more of, like, your NASDAQ-style index, a little bit more towards growth, a little bit more technology, things like that, is down about 6% so far this year. And if we looked at this yesterday, these numbers were a little bit lower. All, you know, these markets had a really good day today. I think the S&P 500 was up about 2%, for example.

But, you know, this is just not just the US story, but these are only US equity indexes, or funds that represent those indexes. And I think as we, you know, think about portfolios, we want to make sure we're diversified not just, you know, among stocks and bonds, but also, you know, international equities. So this next chart here shows, you know, those same indexes down here of the Dow Jones, the S&P 500, the NASDAQ, but also, you know, it shows the MSCI EAFE index, which is this top one in green, and that represents, EAFE stands for Europe, Asia and Far East, and that's countries like Japan, UK, France, Germany, Switzerland. And, you know, that has performed really, really well so far this year, up, you know, 10.7%.

And then the pinkish one here is the emerging markets index, which is China, Taiwan, India, South Korea, et cetera, kind of country more like that. That's up, you know, over 6.5%. And then the brown here is, you know, the overall US aggregate bond index. So all of these, you know, indexes or investments are working in a portfolio, and, you know, that's kind of why we want to be diversified, for, you know, at times where maybe the US equity markets aren't doing great, you know, some of these other investments will kind of pick up the slack. So diversification is working, which is great to see, because we've been waiting for it for a little bit, as the US has outperformed for so long.

And then one last chart I wanted to show here was kind of more of, you know, why international stocks have done well and why we want to make sure we're, you know, globally invested. So this is more of, you know, just what countries have worked so far this year. So the purple down here at the bottom, once again, is the S&P 500, the US, you know, 500 largest companies. But these other lines here represent different countries. So in brown here is, you know, that's up 22.5%, is the MSCI China ETF, so a representative of the Chinese market. The blue here is a representative of the German market, the green here is the Italian market, and, you know, France, and then we have the UK.

So, you know, yes, the headlines are concerning, and, you know, when you have, you know, uncertainty in the market, it's going back and forth by the day, it is, you know, tough to, you know, stay the course. But we really think it, being diversified and, you know, in the course, and remembering, you know, what your goals are for your money is, you know, really important, because many of our clients are saving for, you know, retirement, or in retirement, or saving for maybe their kids' college in 10 years. So we're going to be investing for a long time horizon. We got to keep that in mind.

You know, as Will's chart earlier showed of, you know, reasons to sell, there's a lot of, I remember a lot of really scary events that happened that, you know, as you zoom out kind of looks like a blip. Which is not to say this is not, you know, super important time, but when you put, you know, the long-term things in perspective, I think you got to really remember your goals and why you're investing. But yeah, I think that's about everything that I had. Will, any closing remarks?

No, no, that's the key right there. I think having a diversified portfolio and taking a long-term perspective, and part of that is, you know, kind of embracing through some of these more uncertain times, like the tariffs. And, you know, these headlines won't last forever. In a few months we're going to know which were here to stay and which were negotiations, and the market will move on and adjust accordingly. But no, I think that's all. But good stuff. Thanks, Zach.

Yeah, yeah, I think it's a great way to end it. And if any of you guys, any of our clients, have questions and want to talk about it, please give your advisor a call. We kind of enjoy talking about this stuff. Look forward to seeing you next time. Thank you all.

Thanks.

This transcript was generated from the episode audio and may contain errors.