Markets are not reacting well to President Trump’s plans to announce tariffs on steel and aluminum imports next week. This has the potential to stall economic growth, escalate trade tensions, disrupt ongoing NAFTA negotiations, and foreshadow restrictions on Chinese trade and investment. We note that no final details have been announced, and the specifics could change over the next week. However, this confirms, in our view, that the White House has begun to shift to a more restrictive stance on trade policy.
We are closely monitoring the situation and the overall investment environment. Trade tensions are a risk, along with others we’re watching, such as inflation, Fed rate hikes, geopolitical shocks, and stretched equity valuations. As we’ve discussed in the past, we believe equity prices should remain resilient. Yet, investment returns may be harder to come by, and investors may need to prepare for a period of greater volatility. Particularly during times of stress and uncertainty, we emphasize the importance of thoughtful portfolio construction, having a robust financial plan, and exercising patience and discipline.
Despite a relatively calm 2017, we all know that volatility in equity markets is nothing new. The fact that stocks are volatile is one of the reasons stocks typically provide higher long-term market returns than historically less volatile asset classes. The chart below reminds us that pullbacks are normal, and don’t signal a bad year for stocks.
U.S. Equity: S&P 500® Index. Source: Morningstar. Returns calculated with dividends included. Maximum peak-to-trough represents the return difference between the largest peak-to-trough of the calendar year. Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are unmanaged and cannot be invested in directly.
We recognize that market fluctuations can be unnerving. However, if your personal situation hasn’t changed, our market strategy hasn’t either. We believe our active approach, based on data, research, and common sense will continue to benefit our clients. We are available if you need to talk.