Baseball season is back, and hardball is back in style. Not to be outdone by the new torpedo bats sweeping the Major Leagues, U.S. President Trump has torpedoed the global economy by announcing far-reaching, across-the-board tariffs on all goods imported into the United States. The Administration has begun with a minimum levy of ten percent and as high as fifty-four percent depending on the country of origin. In our opinion, it appears that no trading partner, friend or foe will be spared as the U.S. returns to the nineteenth century when average import duties were previously this high. Goods coming in from China will be subject to uncertain taxes which have been escalated repeatedly this week. Other levies are: Taiwan of thirty-two percent, and South Korea of twenty-five percent. If they stand, the tariffs amount to a massive tax increase on the American public and one that will have wide-reaching ramifications in what we produce and consume. Those who expected inflation to ebb and prices to go down are likely to be disappointed as analysts and economists generally expect the tariffs to increase the prices of goods, both foreign and domestic. Hopes for lower interest rates are also likely to be dashed as the Federal Reserve chairman Jerome Powell says they will not be reduced until the outcome on inflation is clearer. However, rates on treasury bonds did go lower as the market convulsed on the administration’s announcement. 

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The stock market’s immediate reaction was swift and violent from the announcement, as major indices dropped as much as ten percent within two days of the tariff announcements. This pullback is on the heels of a significant decline in stock prices since the February peaks. Worse still, several leading indicators bode ill for the future health of the U.S. economy - consumer sentiment has reached a multi-year low1, capital expenditures have dropped2, GDP estimates have been revised downward3, and odds of a recession have climbed4 and keep climbing according to many US banks. Perhaps, over the long-term, the newly imposed tariffs will begin to enhance domestic economic activity if a ‘reshoring’ trend takes hold to positive effect, but experts are, at best, mixed on this topic. Most economists have been extremely negative and don’t buy that the levies will accrue to benefit the US consumer or economy broadly.  

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Where does that leave us, and most importantly your portfolio? Diversification is back in season as bonds have begun to deliver higher expected returns than in recent years, international stocks and alternative asset classes have weathered the first quarter better than U.S. equities. However, there’s no getting around it – we see that money is being lost.  

It is never pleasant to see account values go down. However, if we zoom out a bit, based on the performance of the S&P, the long-term trend of equities has been positive, and the past two calendar years have produced double-digit returns on stocks6. While it is natural for corrections to happen, we believe that this feels like a self-inflicted wound. We are actively reviewing portfolios and allocations to determine if adjustments are prudent based on your stated financial goal and risk tolerance, or if your specific circumstances necessitate a shift in your investment mix.  

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As we have often stated in this newsletter, stock investments are intended to be held for long-term time horizons, where the period to needing the capital from today is not less than roughly five years. While it is impossible to predict returns going forward, historically, the markets recover

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One thing is certain, though, and that is that uncertainty is no friend of the stock market and today is filled with uncertainty. The question is whether this is a ‘negotiating tactic’ of the administration and whether it will bear fruit in the form of reduced tariffs on U.S. exports or not. Another question is whether Congress (or perhaps the courts) will override the President on this decision but regardless, we believe some damage has already been done.  

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Other concerns are if the tariff shock will be short-lived and will corporations be able to pivot quickly enough to offset the damage that they will cause, or if there is truly a need to rethink long term allocations in the face of an escalating trade war that has the potential to reshape global trade in a way not seen in a century with unknown results.  

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We continue to monitor the situation and while recent results in stock markets have been decidedly negative, these drawdowns have historically produced long-term buying opportunities for patient investors.  

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If you are feeling uncertain about your own prospects and are nervous about your holdings, please reach out to discuss with us. In the meantime, you can rest assured that we will be reviewing your accounts on your behalf and will make changes if we feel it is necessary and in your best interest to do so in accordance with your stated financial goals and risk tolerance. As always, if there are any changes to your financial life, please contact us to discuss. 

Warm regards,

Scott Lasky, CFP™

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Sources, 1 University of Michigan, Haver Analytics, 2 Business Roundtable, NFIB, Federal Reserve Banks (multiple), 3- Federal Reserve Bank of Atlanta.  4- Goldman Sachs, JP Morgan 5- Financial Times Chicago Booth School of Business Survey 6 – Source S&P 500 

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Disclosures All statements are opinions and should not be construed as facts. This newsletter is for informational purposes only and should not be deemed as a solicitation to invest or increase investments in Lionshead Wealth Management’s products or affiliated products. The information provided is for educational purposes. Your advisor does not provide tax, legal, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions. Further, your advisor makes no warranties with regard to such information, or a result obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.All investment strategies have the potential for profit or loss; changes in investment strategies, contributions or withdrawals may materially alter the performance and results of a portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's investment portfolio.  Lionshead Wealth Management is registered as an investment adviser and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. Registration as an investment adviser does not constitute an endorsement of the firm by securities regulators nor does it indicate that the adviser has attained a particular level of skill or ability.
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