Current Market Turbulence
The new tariffs on imports to the US have caused turmoil in stock markets worldwide. The current US administration believes these tariffs will help rectify the negative trade balance the US has with most countries, which it sees as damaging to the long-term prospects for the US. In the short term, however, the tariffs have raised concerns about the possibility of a recession.
We do not pretend to know the full implications of the tariffs. Indeed, companies, and countries (and the Federal Reserve) are still trying to discern the impacts. What is clear is that tariffs have introduced a great deal of uncertainty into the global economy. Since the stock market directly correlates with the economy, that uncertainty is hitting financial markets.
Part of what makes this round of equity drawdowns so painful is the speed at which it has happened. At the time of this writing, the US stock market (measured by the S&P 500) has fallen 14% in just 47 days since its peak on February 19th. International stocks are off 11% in the 19 days since their peak.
Contrast that with the last significant drawdown: In the 10 ½ months ending mid-October 2022, the US market fell 25%, and international stocks were down 33%. So, while that was a significantly deeper drawdown, it happened over a longer period and wasn’t as jarring as this one.
We build portfolios to withstand times like these. That does not mean we avoid losses, but rather, we are diversified across asset classes with different risk exposures. Part of the goal of diversification is to avoid having to sell assets when they are down.
Faced with this uncertainty, some investors will be tempted to retreat to safety to weather the equity market storm. History shows that, while that may feel good at the time, investors often end up harming themselves because, while they may avoid some of the downside, they also miss much of the recovery.
There may be a silver lining to equity market weakness: it creates opportunities for planning-related moves such as rebalancing your equity holdings with less of a tax hit or gifting shares to family members while values are down.
We remain vigilant about market activity and its implications for client portfolios. While we are realistic about our ability to navigate such times, we are also ready to adapt to the new patterns of the global economy.
Know that we are always available if you have any concerns you would like to discuss.
Your Team at NHCO