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The Trump administration is going a bit off course from the stereotypes of a Republican majority. President Trump and his team are strongly suggesting that they are (and they do appear to be) fighting for the “lower 50%” of Americans.
Cutting government employees and programs via DOGE, securing the border, and taking on our debt/trade imbalances via “trade wars” is a fight on multiple fronts. While the Republican majority controls Congress, President Trump is taking full advantage of the opportunity (which he didn’t do in his first term). This fight comes with a cost, as fights typically do. As for now, the cost has come in part to stock market investors. The “Liberation Day” tariff announcements took the market off guard, not because President Trump hadn’t warned of such, but because it became glaringly obvious that he wasn’t messing around. He was willing to take the blame and allow U.S. markets to fall precipitously in order to accomplish the goals of bringing jobs back to America, reducing government debt, and leveling the playing field on international trade matters.
Events of the last few days can make it difficult to recall how the markets were faring even as recently as mid-week last week, but I’ll remind you that at the April 2nd market close, the S&P 500’s calendar year return was only -3%. The bloodbath of selling that ensued on Thursday and Friday accounted for a near -11% waterfall decline.
The market has been extremely volatile already today, and if by some unfortunate chance it closes down another 4% today, this 3-day stretch of selling would only be akin to what was seen during the Great Depression. Not even in ’87, ‘01, ’09, ’20 or ’22 did we experience such a quick and sharp degree of losses. The market appears to be pricing in a deep and sustained global depression. As such, the ideas and hopes of trade negotiations/compromises, interest rate cuts, and/or tax cuts have not been on the mind of the market at all—that is, until a breaking headline this morning of a 90-day delay to key countries, to which the market responded quickly and robustly. Unfortunately, the White House quickly deemed that to be “Fake News.”
Despite today’s noise, we firmly believe President Trump is fighting a worthy fight. Our country was on a path of poor policy that could not end well. Such a major realignment will come at a cost. The market is currently experiencing this phenomenon with the total drawdown of almost -20% from its highs, which is bear market territory. Admittedly, we don’t know how long or deep it will go before there is a trade/tariff resolution and a renewed appetite for market risk, with market buyers outweighing sellers.
As always, we remain committed and are keeping our attention firmly fixed on your portfolios. With many accounts now -9% for the year, a +10% rally would wash away any losses to date. It’s important to keep this in mind - often an investor’s emotional risk tolerance/capacity is less than that of their portfolio. The market will recover. A -10% decline does not negate the financial needs and goals our clients, but as behavioral finance teaches us investors feel the effects of a -10% decline to a larger extent than that of a +20% gain.
I ask that you try to keep this perspective in mind during these trying times. We will see the other side of this.
Please continue to stay in touch with us. We can do our best work together when we hear from you.
Emory
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