A Market Update on Tariffs, Volatility, and Strategy
In today’s market, the only thing that seems consistent is unpredictability. From volatile trade policies to unpredictable economic signals, 2025 has made forecasting more difficult than usual, with traditional indicators offering little clarity. Companies, investment managers, and individuals plan their lives based on the information available to them at any point in time. When things change, everyone adapts to the new situation. Ideally, this adaptation follows a coordinated strategy that supports thoughtful planning and accurate forecasting. What we have experienced year to date is not only extraordinary but so erratic that companies struggle to forecast earnings with accuracy, and the markets have had difficulty pricing securities profitably or predictably. Stock prices are based on expected future earnings and dividends. When markets lack information, they typically spiral in an exaggerated manner to a significantly lower level until clarity emerges. That pattern has defined much of 2025 so far.
Many tariffs have been levied, paused, increased, decreased, and repealed with staggering speed. This volatility has left investors, businesses, and even the Federal Reserve uncertain about how best to proceed. As the administration is discovering, across-the-board tariffs are not only difficult to implement and negotiate—they create havoc in the interim. Negotiating with multiple countries simultaneously is simply not feasible. It is encouraging that China, our largest trading partner, and the U.S. have reduced tariff levels, leaving the market cautiously optimistic that more positive movement may occur in 90 days—or sometime thereafter. For now, the outcome remains elusive.
Political and economic pressures are bringing us close to where we started, as tariff negotiations circle back. Ultimately, we will have to see how much additional tax revenue is raised versus the level of imports. If distribution channels shift and imports decline in response, the net revenue impact may be limited, and the policy goals may not be achieved. Additionally, with the U.S. credit rating downgraded, it is critical to focus attention on the growing federal deficit.
The short-term disruptions caused by the on/off tariff strategy could result in a spike in inflation, especially as low margin companies like Walmart begin announcing price increases when their stockpiles are replaced. The duration of these increases is uncertain, particularly as negotiations continue to be delayed. Expect more volatility ahead as markets digest ongoing changes and the ripple effects play out.
Our portfolio diversification has held up well during this period of volatility. The bond exposure in most portfolios and strong positions in value stocks have weathered the storm to date. That said, it is too early to draw definitive conclusions about the direction of the economy. In times of uncertainty, it is more important than ever to maintain your long-term strategy and set aside emotion. Eventually, this period will become a distant memory—just like the COVID recession. Markets are never a straight line up, but historically they have hedged inflation over time and helped investors reach their financial goals. After all, that’s what this is all about.
Sources:
https://acrobat.adobe.com/id/urn:aaid:sc:US:32de290d-ca95-4f80-b444-3d28a3f1eff3
https://acrobat.adobe.com/id/urn:aaid:sc:US:1cad2ddc-e98b-4cdc-9398-e1e4e2264a48
US economic outlook May 2025 | EY
Walmart’s Price Hikes Open Door to Increases From ‘Everybody Else’
How Does Inflation Affect the Stock Market and Share Prices? | IG International
