Finding Stability Amid the Storm

The last two days have been difficult for investors, with the S&P 500 plunging over 10%. Like many of you, I have watched this volatility with concern. These sharp declines are entirely driven by the latest tariff announcements. These tariffs effectively amount to a $70 billion annual tax increase, or approximately $5,000 per US household. Markets react poorly to tax increases of this magnitude, and this doesn't even account for potential retaliatory measures from trading partners.

But all is not lost. Despite the alarming headlines, there's reassuring evidence that markets continue to function normally. Several bright spots deserve attention:

1. Diversification remains effective

Even as the S&P 500 drops, other asset classes are gaining value – the hallmark of properly functioning markets. Safe haven assets have appreciated while riskier assets have fallen.

Since February 19, when markets began processing tariff implications:

Bonds and Gold have had a positive return

International stocks are doing comparatively better

After a decade where US markets outperformed international indices, we may be witnessing that trend reversing – highlighting why geographical diversification remains crucial.

The revival of the 60/40 portfolio

The traditional relationship between bonds and stocks has re-established itself, making balanced portfolios particularly effective during this volatility:

Even holding just 20% of your portfolio in bonds could have improved performance by 4 points during this period of volatility.

2. Potential paths forward

Congressional intervention remains possible

Congress has the power to regulate international commerce, but past laws have delegated some tariff authority to the President. That grant of power has allowed this round of Trump tariffs. However, if economic conditions deteriorate significantly, Congress could choose to withdraw emergency tariff powers from the President.

Just this week, the Senate passed a bill with bipartisan support to rescind certain tariffs on Canada – a small but encouraging sign that legislative intervention remains possible.

Trump has proposed an economic vision where America is isolated from the global economy, but Congress need not follow meekly into that future.

Potential flexibility from Trump

Yesterday evening, the Trump Administration signaled that it would reduce tariffs if China allowed the sale of TikTok. That’s a remarkably small “concession” to receive from China. If that’s all Trump wanted from China, it will be easy for other nations to offer similar “concessions.”

So far, only China has responded with high retaliatory tariffs. Other nations (EU, Canada, Mexico, and UK) have held off from doing so. This suggests that they plan to offer a “concession” to make Trump feel like he “won” something.

Maintain a long-term perspective

Market corrections, while uncomfortable, are normal. History consistently demonstrates that patient investors who maintain diversified portfolios aligned with their risk tolerance and time horizon are rewarded.

When looking at the long-run, the recent fall in the S&P 500 has not even caused the current price to fall below the 10-year regression. Markets may continue to fall, but the power of “reversion to the mean” will likely pull them back up once this period of uncertainty has passed.

While market drops make headlines, recovery periods rarely receive the same attention. This asymmetry in reporting often creates a skewed perception of market risks and rewards.

I'll continue monitoring these developments closely and provide updates as the situation evolves. For those with specific concerns about your personal financial situation, I'm available to discuss your portfolio in detail.

Market volatility creates opportunity for disciplined investors. Stay focused on your long-term financial goals rather than short-term market movements.