Navigating This Week's Market Turbulence

What a week it's been! I've been thinking about all of you as we've watched the markets react to the recent tariff announcements. I wanted to share some thoughts and put things in perspective.

What's Going On?

On April 2nd, significant changes to U.S. trade policy were announced - a 10% baseline tariff on most imported goods, with higher rates for countries with large trade imbalances. This was a bigger move than Wall Street expected, pushing our average tariff rate to about 23%, the highest in over a century.

The market reaction has been... well, you've probably noticed. The S&P 500 has fallen into correction territory (down over 16% from its peak), the Nasdaq is in bear market territory (down 21%), and small-cap stocks have taken an even bigger hit, down about 25% from their highs.

China announced a 34% tariff on U.S. imports starting April 10th. With this back-and-forth, it's no wonder markets are feeling uncertain.

What Does This Mean For Us?

First, let's take a deep breath. Market corrections like this happen more often than we might think - the S&P 500 drops about 14% from its highs each year on average. That's right around where we are now.

Here's what I'm keeping in mind:

• • The markets are figuring out what all this means for economic growth, inflation, and corporate profits. There's talk about potential "stagflation" (rising prices with slowing growth), but that's not a foregone conclusion.
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  • Fed Chairman Powell mentioned on April 4th that he's concerned about the inflation impact of these tariffs. But interestingly, the market is pricing in four rate cuts this year - more than the Fed has suggested. This indicates investors believe economic growth concerns may ultimately outweigh inflation worries.
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  • Bilateral trade negotiations have already begun with several countries. This suggests these initial announcements may be opening positions rather than final policies.

My Take On What To Do Now
I know it's tempting to make changes when markets get rocky. But here's what I believe: for most of us, sitting tight makes the most sense right now.

The diversification we've built into portfolios is doing its job - high-quality bonds have actually rallied as stocks have declined. The yield on the 10-Year Treasury has fallen more than 40 basis points to 3.9%, which helps offset some of the stock market declines.

The current market environment, while challenging, also creates potential opportunities:

• • For diversified portfolios, different asset classes continue to provide balance. High-quality fixed income has performed well year-to-date, offering some offset to equity volatility.
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  • While it's impossible to predict exactly when market sentiment will shift, the focus in Washington may soon turn to tax reform and regulatory changes that could potentially support economic growth and market sentiment.
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  • For long-term investors, market corrections often present opportunities to rebalance portfolios and potentially enhance positions in quality assets at more attractive valuations.
    There are different perspectives on where we might be headed. Markets could face continued pressure if trade tensions escalate further, or we could see improvement if negotiations lead to more moderate outcomes.

Remember, these new tariffs don't go into effect until April 9th (and China's response starts April 10th). A lot can happen between now and then.

I'm keeping a close eye on how things develop and am here whenever you want to talk about your specific situation. Sometimes, the best action is thoughtful patience rather than reaction.

If you have any questions about this recent volatility or anything about your situation  - I'm always happy to discuss what's on your mind.

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