Seeking Shelter Amidst the Trump Tariff Fallout
As he promised he would, President Trump introduced his long-awaited trade tariffs last week and — as many economists predicted — markets around the globe reacted with shock and awe, triggering a massive sell-off not seen since the darkest days of the COVID pandemic.
Tech heavyweights such as Amazon, Alphabet and Nvidia were hit especially hard, losing billions of dollars in market cap within hours of Trump’s announcement. Apple, for instance, endured historic losses because, as one source explained, more than 90 percent of the company’s manufacturing is based in China, a country shouldering a high degree of new tariffs under the new plan.
Pitchbook summed up the immediate fallout effectively:
“While there had been hopes that the new tariff plan would provide needed clarity for investors to move forward with dealmaking, the opposite has occurred. The plan is generally regarded as more severe than expected, increasing the chances of a recession and retaliatory tariffs. This will add to dealmaking hesitation and keep pressure on an already stalled exit environment.”
Some Potential Silver Linings Amidst the Market Upheaval
Rather than get bogged down in the immediate — and understandable — pessimism, it may be helpful to look at historical trends, current conditions and areas of investing that may offer potential shelter.
Factors such as inflation, rising interest rates and geopolitical tensions were already in play and contributing to a high degree of investor unease. The new tariffs have only intensified volatility because they will likely further disrupt supply chains, increase business costs and impact corporate earnings, making an already bumpy road much bumpier.
That is why it is especially important to remember that historically, public equities have shown themselves capable of performing strongly compared to other asset classes. The S&P 500 Index, for instance, has delivered an average annual return of approximately 10 percent during the last one hundred years across many downturns.
Technology, Healthcare & Other Sectors
Such long-term growth demonstrates the resilience of equities, even though they often come with higher volatility as well as periods of significant declines. While past performance doesn’t guarantee future results, equity investing could provide the potential for sustained growth during the current turbulence.
Meanwhile, even though the tech sector has been initially hit hard by the tariffs, in the long term, technology may still prove to be a standout performer, as it has proven to be in recent years. Opportunities in software and cloud computing, for instance, may be less directly impacted by tariffs, as they are tied more to intellectual property than overseas hardware.
Defensive sectors could also hold up better than other sectors because they deliver essential goods and services. The healthcare sector, for instance, might be worth considering because of the ongoing demands of an aging population. Similarly, utilities may provide some stability because they are in demand regardless of market volatility.
Investors may also wish to look for firms with solid balance sheets (low debt, strong cash reserves and pricing power). Such companies may be in a better position to weather the immediate economic challenges and uncertainty. Also, because tariffs typically favor companies with deeply rooted domestic operations, they are less reliant on global trade and investors might realize returns there.
Perhaps most importantly, diversification is key. The investors who weather this latest economic tsunami most successfully may be those who spread their investments across various asset classes, geographies and sectors. Volatility cannot be eliminated, but it may be negated by minimizing exposure to any one single investment theme or region.
Next Steps
Analysts warn this latest round of tariffs could lead to higher inflation, reduced consumer spending, slower global growth, reduced business investment and weakened currencies. As such, volatility will likely persist for the short term.
By prioritizing quality and resilience, investors can position themselves to withstand near-term storms and capitalize on the potential strength of proven public equities. Anxiety about a U.S. recession and a global downturn triggered by tariffs is understandable, but panic will not help. Clearheaded thinking, on the other hand, might.
If you’re an accredited investor seeking guidance, feel free to contact Avestix. We are here to help.
