Tariffs: The Art of the Deal or Here to Stay? 2025 Market Insights with James Ragan
In our previous video, less than three weeks ago to now,
we discussed how investors were navigating
through numerous market-moving events in early 2025.
Many of these events are a constant
in the investment process,
and this includes economic growth data,
changes to interest rates and inflation,
and corporate earnings reports.
But this year included a presidential transition
as Donald Trump returned for a non-consecutive second term,
and he brought along a long list
of significant policy pivots.
Through it all, U.S. financial markets
have been very resilient with rising stock prices
and stable interest rates.
As of mid-February, well, through February 12th,
the widely followed S&P 500 Equity Index
increased about 2.9% on a price basis year-to-date,
and U.S. Treasury yields from two years to 10 years
moved modestly higher than at the beginning of the year.
Now, one of President Trump's policy pivots
has become front and center
at our investment meetings in February,
and that's the escalation of a tariff-driven trade policy.
Thus far in February,
the president imposed and then delayed widespread tariffs
on Mexico and Canada, implemented tariffs on China,
and added blanket tariffs
on all imported steel and aluminum.
You know, the tariff situation is fluid
and likely to play out over months, not weeks or days,
and this not only creates investor uncertainty,
but adds challenges for companies
to manage the supply chains and their cost structures.
Does the president intend to use tariffs
as a negotiating tactic,
or is an America-first tariff-driven trade policy
here to stay?
In our view, it's likely to include some of both.
President Trump sees tariffs as a key element
to incentivize fair trade agreements
and also as a tool to drive more U.S. manufacturing.
Tariff policies can be inflationary
and will likely be an ongoing concern for investors
if widespread tariffs become permanent.
However, the president is also a negotiator,
which he demonstrated in his first term,
and we believe tariffs can be minimized
if the U.S. gains concessions.
Trump wants to see foreign markets open to U.S. companies
along with foreign capital investment made in this country.
In addition, while negotiating trade deals,
the administration will also work
on cutting regulatory red tape and lowering taxes
to drive other sources of domestic capital investment.
Consumers and companies can often adjust to tariffs
on imports, especially if the U.S. dollar rallies
to minimize the impact,
but a trade war with retaliatory tariffs can be a headwind,
limiting U.S. exports and creating demand disruption.
S&P 500 companies rely on foreign markets,
so earnings growth could be impacted,
especially if large trading partners fall into recession.
So what does this mean for investors?
We believe that interest rate pressure
remains to the upside, keeping rates elevated,
and that equity market volatility is likely.
U.S. equity markets trade at above-average valuations,
making indices such as the S&P 500
exposed to valuation shocks.
But the pro-growth narrative remains in place
as the president will push for business investment
and consumer trends are solid.
So for now, we buy the dips,
stick with quality and earnings growth visibility.
Sectors that exhibit solid earnings expectations
and above-average growth,
growth rates include financials, communication services,
technology, and healthcare,
but in portfolios remain broadly diversified across sectors.
For specific recommendations and strategies,
please contact your DA Davidson financial professional.