BY STRATEGIC ADVISERS INVESTMENT TEAM — April, 2025
Market Conditions
Tariff announcements this week came in higher than many investors were expecting. This led to market volatility as estimates for global economic and earnings growth shifted.
While this was likely challenging for investors, it is important to remember that the tariff situation remains fluid. There are likely to be negotiations between countries on how to lower tariff levels. New agreements may lead to an eventual market recovery.
While markets have been volatile, we believe the U.S. economy continues to expand, supported by low unemployment and rising corporate earnings. Tariff uncertainty and government spending cuts may lead to more moderate, yet still positive growth for the U.S. economy. The investment team is carefully monitoring policy developments and is ready to act as needed.
- Recent tariff announcements have caused significant market volatility, with new tariffs notably larger than earlier ones.1 While the current administration views tariffs as a tool to boost revenue and protect industries, they may also drive some prices higher for consumers and lead to more moderate growth.2
- What does this mean for consumers? Companies may pass on higher costs to consumers. In turn, consumers may choose to cut spending and seek product substitutes. Some companies may experience slower earnings growth, particularly if they are dependent on global trade.
- This is unlikely to imminently lead to a recession. For now, we believe the economy remains in a period of expansion. Investors should remain focused on their long-term financial goals and avoid making changes based on short-term events. US stocks have increased over the year, through numerous news headlines and bouts of volatility.3 Additionally, a well-diversified portfolio consisting of global stocks and bonds may provide a smoother investment experience than just owning US stocks alone.4
- Remember, market volatility is normal. It's likely that we'll hear more about negotiations and trade deals in the coming weeks and months. There may be further bouts of volatility or unexpected rallies as that process unfolds.
What it may mean for your portfolio
While recent news headlines may have led to a number of worries for investors, we believe economic growth and the outlook for corporate earnings have been more powerful drivers of stock market growth over time. For example, in the 5 years from 2019 to 2024, the S&P 500 index rose 97%, including dividends, despite experiencing numerous periods of volatility through the COVID-19 pandemic, the start of the Russia and Ukraine conflict, high inflation, and numerous other challenges.5 Patient investors who stuck to their financial plan over that time were more likely to advance towards their financial goals.
With that in mind, below are our views on the economy and tariffs.
The economy has shown resilience in the face of past stressors
The economy has shown recent strength, which could potentially allow for a more moderate pace of growth without entering into a recession. For instance, the U.S. GDP growth rate grew over 2% every quarter in 2024. So even if the economy were to grow more moderately, it could still expand in 2025. With corporate earnings expected to rise this year, the job market may be able to withstand some of the government job cuts underway. Additionally, consumers are likely to continue spending even if some prices on imported goods were to rise. This may feel uncomfortable for consumers, but the economy may still grow.
Tariff uncertainty may lead to more moderate growth, but imminent recession risk is still low
Tariffs run the risk of raising some costs for certain imported goods for U.S. consumers. Higher prices on some goods may lead to a more moderate pace of economic growth. However, this alone is unlikely to tip the U.S. economy into recession. In recent years, inflation peaked at high levels and prices for many goods went up faster than average. But the economy continued growing through that time.
Outlook
As investors have already seen this year, periods of volatility are possible as policy shifts take place, and uncertainty remains on inflation and global trade. Overall, we believe it is important to keep potential policy discussions in perspective and not let them dominate long-term investment decisions. Historically, economic growth and corporate profits have been more significant drivers of market performance than policy measures.
One of the key roles of the investment team is to continually monitor and research current conditions to manage risk within client accounts. If the economy shows signs of strain, or the risks of a recession start to rise, we may seek to reduce stock allocations and add more exposure to bonds. Or if we get resolutions on tariffs or favorable global trade deals, this may prompt us to increase our exposure to stocks. We are prepared to act as the situation evolves.
Make a plan, stick with it, and stay invested
Market conditions can change quickly. Historically, the market has sometimes rallied even as news headlines may have felt discouraging. We aim to guide clients through market conditions, including those that have seen strong performance in the past two years. As a result, we have maintained healthy exposure to stocks, even through bouts of market volatility. We believe that staying invested through varying market conditions can ultimately help you reach your financial goals over the long term.
