As we approach the end of the first quarter, the new administration is working toward implementing its strategies. With an unpredictable approach that often challenges traditional norms, the marketplace is absorbing these policies and assessing their impact. Markets always bring a degree of uncertainty, but with significant cultural and governmental shifts, it has become even harder for investors to focus on economic fundamentals. Typically, unpredictability leads to increased market volatility, especially when unexpected events occur. In this case, while the market is aware of the administration’s stated plans, the challenge lies in evaluating the actual implementation, timing, and magnitude of those policies.
Here’s what we know: The U.S. economy has remained resilient, and several opportunities lie ahead. Deregulation could create favorable conditions for businesses, particularly by encouraging expansion, mergers, and acquisitions. At the same time, advancements in AI and technology are expected to drive productivity and reshape industries through automation and efficiency gains. However, economic growth is projected to hover around 2%, reflecting the delayed impact of the Federal Reserve’s tightening policies. Immigration policies could also contribute to inflation by potentially reducing the labor supply, leading to higher wages. While deregulation may help offset some of these effects, it may not be enough to fully counteract the inflationary pressures created by tighter immigration rules.
Tariffs have also been a point of contention, with some already implemented and others still being debated. Looking back to 2018 during Trump’s first term, the goal of shifting production and jobs while reducing trade deficits was not fully realized. Instead, corporate profits stagnated, the deficit widened, and global supply chains faced disruptions. The current administration’s approach to tariffs—both in scope and as a negotiating tool—remains uncertain, making it difficult to predict their full impact on businesses and consumers.
In summary, there are competing forces influencing the stock market. Deregulation, potential extensions of expiring tax provisions, advancements in AI, and a growing private equity presence could drive economic growth. On the other hand, policies on immigration and tariffs may introduce inflationary pressures that could counteract some of these gains.
In my 40 years of wealth management, people have always believed that “this time is different.” Looking back, we’ve faced numerous events that caused fear and uncertainty—1983’s invasion of Grenada, the Persian Gulf War in 1990, the Oklahoma City bombing in 1995, the 9/11 attacks in 2001, the Boston Marathon bombing in 2012, and, more recently, the ongoing conflicts in the Middle East and Ukraine. Each of these moments tested investor confidence, yet history has shown that remaining calm and avoiding panic has been the best course of action. Markets have been remarkably resilient through it all.
The best approach to managing market uncertainty is to assess where you stand in relation to your financial goals. Build a portfolio that aligns with your risk tolerance, aims to ensure it is well-diversified, and rebalance it as needed. It can be tempting to chase short-term trends or react emotionally to market swings, but history has shown that sticking to a disciplined plan is the most effective way to achieve long-term financial success.
