Trade Wars and Tariffs: What They Mean for Your Portfolio
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Stay caught up with our latest updates on the market and our take on how to navigate the changes.
In this episode, we discuss the current financial market turmoil caused by Trump Administration.
Since the end of March, markets around the world have been in free fall, and the S&P 500 is in a correction by many measures. The reason for the sudden crash is the introduction of substantial tariffs on essentially all imports into the US.
Why is the US changing the way the world trades? Is there a good faith argument for this given the turmoil it’s caused? As with any complex issue, the answer is unclear, but we cover the rationale behind tariffs and their potential benefits for U.S. trade relations and Canada’s internal trade improvements.
We also discuss what we are doing to manage client portfolios during these challenging times. No one likes to see their portfolio balances go down, it’s difficult, but the most important thing is not to panic. Markets cannot go up forever and corrections are inevitable. A dip in the market provides an opportunity for strategic rebalancing, structuring your portfolio for solid growth in the eventual recovery.
If you have questions, topic ideas or want to discuss your own investments please reach out, we’d love to hear from you.
Email us at info@towerasset.ca.
Navigating Market Turmoil: Investment Strategies Amid Trade Wars and Tariffs
Welcome back, readers! Today, we’re diving deep into the current turmoil in the financial markets, primarily driven by trade wars and tariffs. If you’ve been following the news, you’ve likely felt the impact on your investments, with account balances fluctuating significantly. In this post, we’ll discuss the strategies being employed by Donald Trump and his administration, evaluate their effectiveness, and share how we’re managing your accounts during this period of uncertainty.
Market Overview
As of April 8th, the Toronto Stock Exchange has seen a year-to-date decline of 8.3%, while the S&P 500, which represents the 500 largest companies in the U.S., is down 15%. This places the S&P 500 firmly in correction territory. However, it’s worth noting that on April 9th, the S&P 500 experienced a remarkable 9.5% increase in a single day, largely due to Trump announcing a slight pause on tariffs. Such a significant one-day jump is rare, and it highlights the volatility and rapid changes in market sentiment.
Understanding Tariffs and Trade Relations
The Rationale Behind Tariffs
While many may not agree with Donald Trump’s approach, it’s essential to understand the context. The U.S. has faced trade imbalances and significant hurdles in exporting goods, such as cars, to countries that impose high tariffs. Trump’s strategy appears to be a response to these challenges, aiming to level the playing field by imposing similar tariffs on countries that have been treating the U.S. unfairly.
Long-Term Goals
We believe that the Trump Administration’s ultimate goal for these tariffs is to negotiate lower or no tariffs in the future, leading to more balanced trade agreements. Additionally, the current situation could be beneficial for Canada, as it may prompt the country to address its own internal trade barriers. By improving interprovincial trade and infrastructure, Canada could emerge stronger from this turmoil.
The Resilience of Markets
A key point made during the discussion is the inherent resilience of markets. Despite the challenges posed by tariffs and trade wars, human ingenuity tends to find solutions. Even if tariffs become permanent, markets will adapt. This adaptability is a fundamental reason why markets generally trend upward over time.
Investment Strategies During Market Volatility
Our approach is designed to ensure that client accounts are managed effectively, even during downturns. We have three primary strategies: Momentum, Value, and Dividend investing. These strategies are complementary, allowing us to offset losses in one area with gains in another.
Momentum Investing
Momentum investing involves buying stocks that have shown an upward price trend. The idea is that stocks that have performed well in the past will continue to do so in the near future. This strategy can be particularly effective during volatile markets, as it allows investors to capitalize on short-term gains.
Value Investing
Value investing focuses on buying undervalued stocks that have strong fundamentals. This strategy is based on the belief that the market will eventually recognize the true value of these stocks, leading to significant price appreciation. During market downturns, many high-quality stocks become undervalued, presenting excellent buying opportunities.
Dividend Investing
Dividend investing involves buying stocks that pay regular dividends. This strategy provides a steady income stream, which can be particularly valuable during periods of market volatility. Dividend-paying stocks are often more stable and less prone to large price swings, making them a safer investment during uncertain times.
Rebalancing Portfolios
In light of the current market conditions, we plan to rebalance client accounts in the coming week. This involves selling positions that have grown larger than intended and buying those that are underrepresented in the portfolio. By doing this, we can take advantage of the market’s current discounted prices, positioning your accounts for a more significant recovery when the market rebounds.
Why Rebalancing Matters
Rebalancing is crucial because it ensures that your portfolio remains aligned with your investment goals and risk tolerance. During periods of market volatility, certain assets may become overvalued or undervalued, leading to an imbalanced portfolio. By regularly rebalancing, we can maintain the desired asset allocation and reduce risk.
Investing Cash on the Sidelines
We also encourage clients who have cash on the sidelines to consider investing it now. While it may feel counterintuitive to invest during a market downturn, long-term investors often benefit from buying during corrections. This strategy can lead to substantial gains when the market eventually recovers.
The Benefits of Investing During a Downturn
- Lower Entry Prices: Market downturns often result in lower stock prices, allowing investors to buy high-quality stocks at a discount.
- Potential for Higher Returns: By investing during a downturn, you position yourself to benefit from the market’s eventual recovery, potentially leading to higher returns.
- Diversification Opportunities: Downturns provide an opportunity to diversify your portfolio by adding new assets at lower prices.
Conclusion
In summary, while the current market turmoil presents challenges, it also offers opportunities for strategic investment. By understanding the broader economic context, adapting our strategies, and remaining focused on long-term goals, we can navigate these turbulent waters effectively. If you have any questions or would like to discuss your investment strategy further, please don’t hesitate to reach out to Tarek or Mark. Thank you for tuning in, and we look forward to speaking with you again soon!
Full Transcript
Tarek 00:00:00 High Tower Talk listeners, thanks for tuning in once again. We wanted to touch base with you really quickly, just because there’s been so much turmoil in the market around trade wars and tariffs. Unless you live under a rock, you’ve seen the news, you felt the effects, and you’ve maybe seen your account balances fluctuate up and down. So we wanted to touch base about what’s going on there. The next thing we’re going to talk about is specifically what’s the plan that Donald Trump and his team in the United States have? What are they trying to achieve? Are they doing the best things they can to to achieve that goal? And then finally, what are we doing to manage your accounts during this, this this turmoil? So I’ll start with just a couple a couple stats. So the Toronto Stock Exchange this is as of April 8th is down year to date. That’s from the end of 2024 88.3%. The S&P 500, the 500 largest companies in the states over the same time period down 15%. So the S&P 500 is firmly in correction territory.
Tarek 00:00:58 But as I say this, I want you to know that markets. Today we’re recording on April 9th. They just closed and the S&P 500 did a 9.5% positive day. Right. So one day, one day, one day. It’s like the reason is Donald Trump announced a slight pause on the tariffs. Markets jumped up because of that. I’ve never seen the SB 500 jump up that much in one day. Maybe. Maybe Mark has. and I want to be clear. I.
Mark 00:01:25 Remember the down days. I remember the down days was in the up days.
Tarek 00:01:29 They are always.
Mark 00:01:29 The tougher one. Thank you. Yeah. Keep going.
Tarek 00:01:31 Our, Our strategy is a tower here. You know, there in the negative post March 31st, as of March 31st, mostly in the positive. But after the tariffs were announced, you know, many of you, many of you saw your client, your account balances go down. It’s always hard to see. But they are down less than the market as a whole.
Tarek 00:01:52 And that’s the key. You know, you’re not feeling the full brunt of a -15% in the United States, or the full brunt of a -8.3 in Canada. We’re managing your accounts to to account for that. Additionally. actually, you know what? I’ll I’ll leave that for later. Why don’t I pass it off to you, Mark? Talk about what’s going on in the overall.
Mark 00:02:10 What you’re saying is our strategies are holding up reasonably well. Yes. So what’s going on with this tariff thing? Let me take a minute and say whether or not we’re fans of what Donald Trump is doing, and I haven’t met anybody who is yet, but I can understand what he’s doing. And that is there have been trade imbalances that he’s his country has had to live with. Number two, there have been hurdles to exporting American goods like cars to countries where they charge 100% tariff on the new car that arrives, like, why? What’s in it? You know, so I think what Trump is doing is saying, you want to treat us that way.
Mark 00:02:54 We don’t treat you the same way. So get used to it. Now, is that his endgame? No, I don’t think so. I think his endgame is to bring it all back down to low or no tariffs. I do think that’s where we’re going. I don’t think that’ll be 18 months from now where trade agreements are made. That makes sense on both sides, and suddenly there will be a much freer trade around the world. Number two, what’s going on in Canada? Well, this can be the best thing that has happened to Canada in a long time. Maybe it’s at least decades, if not centuries, because we have this provincial entitlement, provincial rights, provincial trade barriers. It’s easier for Albertans to trade with the US than it is with Quebec. Like why? If we want to be a stronger country, let’s get our interprovincial trade. Let’s build the pipelines and build the highways. Let’s build the railroads that we need to get our country on a good footing as well. So I think this will end up being very good for Canada.
Mark 00:03:59 The third thing I want to say, and I didn’t say this in the previous practice run with you, Terry, why do markets always go up. Oh, you’re going to say, well they actually go down and up. Yes. But overall the track is up. Why? It’s because humans are ingenious, and humans have a way of figuring out how to deal with the problems that are presented in the market, and human ingenuity will again solve whatever problems. Even if Trump wants to introduce tariffs and they become permanent, Canadians will figure that out. We’ll adjust. Vietnamese will figure it out. Vietnamese will start shipping all their stuff to Canada. Canada will have a friendly deal with the US and they’ll sneak it into the US. I don’t know, but human beings are very clever and that’s why the markets do end up going up overall. Now we’ve got three strategies to talk about how we’re doing, what we’re doing and then how it works together.
Tarek 00:04:53 Absolutely. So the various strategies we have are designed to work together so that, you know, in various market cycles, like we’re seeing right now, when one is up, the other is down, they offset each other.
Tarek 00:05:05 They’re complementary. What what we’re doing right now then, is we are going to be rebalancing almost all client accounts in the next week just to. So what that means is we’re going to be selling positions that are larger than they’re supposed to be, as outlined in the documentation we sent to you. We’re going to be buying positions that are smaller than they’re supposed to be. and the benefit is we’re rebuying positions at a significant discount to what they were even ten days ago. And that is the best way to align your account and set yourself up to take the best advantage or the most advantage of the inevitable recovery. As the market comes back, your your account will enjoy the returns much more significantly in that situation. And so that’s what we’re doing. The other thing I would recommend, it’s a little counterintuitive, but if you do have cash, that you had on the sidelines, you’re waiting to invest or you recently came into some cash, you were wondering what to do with it. Now is the time to put it into the market.
Tarek 00:06:02 It it feels like, oh, things are crazy. I don’t know if I want to do that. If you’re investing for the long term and there’s a bit of a correction, that is the time you want to invest. yeah, that’s that’s all I would say. And that’s what we’re doing.
Mark 00:06:14 So we’ve got these three strategies. There’s momentum, value and dividend. Elaine and I are in each and about 50% of our assets are in the momentum strategy. Half of the rest is in the value strategy and half of the rest is in dividend. Our overall holdings have held up really well as a as a family, and we would like you to think about that, because momentum is kind of a really fast burner and does really well, especially when markets are doing well because momentum does that and then we rebalance it, rebalance and rebalance it. But there are times when we get hit with stress points like this one. And suddenly the dividend yield strategy is looking really good, or the value strategy is looking not so bad anyway.
Mark 00:07:02 We’d like you to think about that. And if you need to, talk about it, just call Tarek, call me and we’ll talk about it with you and see what might work best for you in your situation.
Tarek 00:07:12 Absolutely.
Mark 00:07:14 I think we’re done.
Tarek 00:07:16 I think so, too.
Mark 00:07:17 All right. Thanks, everybody.
Tarek 00:07:19 Bye bye. Talk to you later.
