CIO Update: What you should know about President Trump’s tariffs

5 minute read

Markets are reacting strongly to President Trump's reciprocal tariffs, kicking off what will likely be several weeks of market adjustments. With headlines flashing and analysts rushing to revise forecasts, it's natural to feel concerned about your investments.

However, as countries formulate their responses and negotiations progress, it's crucial to put these tariffs – and any future events – into proper context. What matters is understanding what they mean for your long-term investment strategy, beyond the immediate market noise.

Putting everything into context

Markets greeted early tariff talk with cautious optimism, viewed as an opening move in trade negotiations. But sentiment deteriorated over recent weeks in the lead-up to the full release. Yesterday's announcement revealed substantial tariffs targeting multiple countries, with China facing additional rates as high as 34% and the EU 20%.

First off, let's remember that we've seen this before. During President Trump's first term, tariffs were also a cornerstone of his economic policy – particularly with China. Those tariffs also triggered market volatility as investors tried to assess their economic impact. Despite the volatility, the US economy continued to grow – GDP expanded 2.9% in 2018 and unemployment remained low. Ultimately, the S&P 500 ended 2019 up 20% from the start of 2018’s tariff talks.

What we're seeing is the Trump administration's sequencing of policies – implementing spending cuts and tariffs now, while growth-supportive tax cuts and deregulation will take longer to materialise. While the near-term may see further market volatility, we believe that the risks of a deep recession remains low. 

(For a deeper dive into our analysis of Trump’s economic agenda, see: CIO Insights: No Pain, No Gain.)

Steps against market volatility

As we move through what will likely be several weeks of negotiations and market reactions, here are three things you can do as a long-term investor:

1. Stay invested

If you’re investing for the long game, volatility is simply a natural part of market cycles. The most important thing you can do, therefore, is to remain invested through these fluctuations to capture long-term gains. Historical data strongly supports staying invested – 7 of the 10 best days in the markets occurred within two weeks of the worst days. Missing just those 10 best days has historically cut potential long-term returns by nearly half.

2. Dollar-cost average

During periods of market volatility, investing a fixed amount on a regular schedule means you're naturally buying more shares when prices are down and fewer when they're up. This also removes emotion from the equation and positions you to benefit when markets eventually recover – as they have consistently done throughout history.

3. Diversify

While US equity markets may experience heightened volatility in the coming months, this shouldn't derail your long-term investment plans. In the face of uncertainty, diversification and having the right risk-level ensures you stay invested through the ups and downs – when certain segments of the market face pressure, others can provide offsetting strength.

We've seen this in action over the last few weeks: while the S&P 500 is down about 4.8% since the start of the year, a diversified portfolio can perform better through volatility. Our General Investing SRI 6.5%, 22%, and 36% portfolios, for example, are up 2.1%, 2.3%, and 0.75% respectively, owing to their allocations across multiple regions and asset classes.

Our General Investing portfolios powered by StashAway, are built with diversification in mind, and their strategic allocation to gold across all portfolios has provided crucial support during the recent market turbulence. In our higher-risk, equity-focused portfolios, exposure to defensive sectors like healthcare and consumer staples, alongside non-US equities, have contributed to higher returns and lower volatility. Meanwhile, our lower-risk portfolios have benefited from their fixed-income allocations.

Notably, while US equities have dipped into negative territory, all of our General Investing portfolios have maintained positive returns. What’s more, their allocations have contributed to our portfolios outperforming their same-risk benchmarks by about 0.5 percentage points year-to-date on average across risk levels.

(Keep an eye out for our full Q1 performance report, which will be out towards the middle of this month.)

The fundamentals still rule

Market reactions to policy announcements can be sharp, but they're often overshadowed by broader economic forces in the long run. In the coming weeks, we’ll likely see continued market volatility as tariff implementation details unfold and international responses emerge. To come out on top of a volatile market, focus on the fundamentals – growth, inflation, liquidity, and corporate earnings. These factors ultimately drive markets beyond the short-term headlines.

Staying invested in a globally-diversified portfolio with a risk level that you’re comfortable with is the proven strategy through market cycles and political shifts, and it remains the most reliable path to building long-term wealth.