Tariffs Should Not Alter Long-Term Investment Goals: 2025 Market Insights with James Ragan

On this day of global equity market weakness, tariff uncertainty remains a dominant investment theme in 2025, and as some uncertainty is reduced, investors have not reacted positively. Initial tariff fears pulled equities lower from February highs, and by March 13th, the S&P 500 equity index was down about 10 percent from its peak several weeks earlier. Some of those declines were recovered by the end of March, as markets considered the potential of more limited tariffs, but that view was shattered yesterday when President Trump's April 2nd tariff announcement was larger and more broad than expected. After an S&P 500 4.8 percent decline today, the peak to trough correction is now more than 12 percent, and the S&P 500 year-to-date is down 8.2 percent. We attribute the sell-off today to recession fears, as the odds of a U.S. recession increase if the tariffs remain in place as is. If a recession comes, there's likely more downside in equities, but if growth slows but stays close to flat, equities have priced in much of that risk. In addition, many investor portfolios that have exposure to both growth and value stocks, as well as bonds, have likely held up much better than the headline S&P 500 reflects, which highlights the benefits of diversified portfolios. Bond prices rose today as investors fled to perceived safety, and even within the S&P 500, the consumer staples sector increased modestly while the overall index was sharply lower. During times of market weakness, it's very important in our view to adhere to long-term investment plans and make adjustments as necessary. We're not sure how low the markets will go in this cycle. Our sense is that much damage has already been done, but as I said, the economy moving into recession remains a risk. However, there are potential catalysts, perhaps most importantly the negotiation of some trade deals, but also we see deregulation to support domestic capital investment and tax cuts that can also provide relief. Throughout our career, the U.S. economy and equity indices have recovered from severe economic shocks as leading companies optimize their business models to capitalize on opportunities and ultimately build long-term shareholder value. That's why we lean toward companies with leading market share, experienced management, track records of resilient cash flow through the business cycle, and strong balance sheets. Investors who leave the market not only must make the decision when to get out, but then must also time when to get back in, and we believe that the second decision, when to get back in, is the more difficult one. That's because equity markets often bottom when the data is still bad, and by the time sentiment improves, the indices are often significantly higher. So stay the course, check asset allocation weightings compared to your targets, and rebalance if needed. In the short run, especially if you're looking to put cash to work, it's okay to add defensive positioning. I mentioned the consumer discretionary—consumer staple sector and government bonds earlier, and also that includes other sectors like utilities and health care. In the next few weeks, S&P 500 companies will begin reporting first-quarter earnings, and this will add more information as we continue to analyze the impact of tariffs, and even in a tariff-in-place world, there should be investment opportunities. For specific recommendations and strategies, please contact your D.A. Davidson financial professional.