According to an AI generated definition, a tariff is a tax imposed by a government on goods imported from another country, often used as a trade barrier to protect domestic industries or generate revenue. Along with an economic and stock market impact, tariffs also encompass the worlds of politics and philosophy, which further add to the discussion. We will, however, stick with looking at the stock and financial markets here. To get right to it, and simply put, the stock market does not like tariffs, as they are considered a clog in the engine of business, commerce, and economic growth. Beyond that, the market absolutely loathes the thought of a trade war.
President Trump announced larger-than-expected tariffs last Wednesday (after the market closed). In response to the tariff announcement, along with the ongoing sour outlook and uncertainty surrounding them, the major stock market averages took a beating. On Thursday, the Dow Jones Industrial Average, the Standard & Poor’s 500 Index, and the NASDAQ Composite – fell approximately 4%, 5%, and 6%, respectively. Friday’s losses for the group were even worse, with the Dow down over 2,200 points or 5.5%. When it was all said and done last week – the Dow shed 7.9% to 38,315, the S&P tumbled 9.1% to 50,074 (its worst week since the Covid pandemic) and the NASDAQ plunged 10% to 15,588. The NASDAQ is now in a bear market(a drop of over 20%) and the S&P is down over 17% from its high.
Away from the tariff issue which dominated the financial market story last week, and largely overlooked because of it, the Jobs Report released Friday morning was much stronger-than-expected. The U.S. Department of Labor reported the economy added 228,000 jobs last month. However, that number of course reflects data before the tariff announcement, so investors did not take much comfort in it. Looking to the week ahead, first quarter earnings season begins this week, with big banks/financials JPMorgan Chase, Morgan Stanley, BlackRock, and Wells Fargo scheduled to announce results. For the first quarter of 2025, the estimated year-over-year earnings growth rate for the S&P 500 is 7%, if that is the actual growth rate for the quarter, it will mark the seventh straight quarter of earnings growth, according to FactSet.
Additionally this week, is the release of the Consumer Price Index report for March, where expectations are the U.S. Bureau of Labor Statistics will report a year-over-year increase of 2.6%, two notches less than the prior reading. The core CPI (which excludes food and energy) is expected at 3%, a notch less than previously. This report will serve as a benchmark for what now happens post tariff, and inflation numbers also have a major impact on Federal Reserve monetary policy and the outlook for interest rate cuts. Despite these usually important reports and data, it currently appears this week’s market action will be primarily dependent on tariff news.
It is impossible to know how this tariff/trade situation will play out. The situation is fluid, and we do not believe even the various world leaders have decided or know the final outcome. However, regarding the outsized market volatility and drop we are now seeing – we generally do not advise selling into a panic – and we also generally advise buying the dips, which has worked so well over the history of the stock market. Both big picture philosophies/strategies are time-tested and have become market axioms! Still, they are generalizations. Specifically, we recommend having an investment portfolio structure and composition that is right for you and staying the course that is right for you. Factors that should be taken into consideration include your risk-tolerance, risk-capacity, goals and objectives, cash-flow needs, and time horizon.
As always, and especially in times like these, feel free to call us to discuss your specific situation, or to schedule a meeting.
All the best – Southport Station Financial Management, LLC