Tariff Survival Kit for the Long-Term

President Donald J. Trump may thrive on chaos, but the financial markets are having none of it. Last week’s massive tariff announcement shocked Wall Street, reducing total market value by $6.6 trillion - the sharpest drop since 2020.

In essence, the new tariffs constitute the greatest tax ever imposed during peacetime. Families, on average, will see their cost-of-living increase by $3,600 annually

(source: Yale Budget Lab).

With inflationary pressure building, the Federal Reserve will delay anticipated rate cuts. Meanwhile, GDP in 2025 is expected to be 1.7%, down from 2.8% in 2024. The specter of persistent high interest rates coupled with slowing growth raises fear of that dread beast from the 1970s – stagflation. (Boomers remember.) Not deemed likely for now, this risk is on every economist’s radar.

Resisting toxic nostalgia

The administration’s tariffs could trigger a global recession and, with it, a further decline in financial markets. Some Republican senators and billionaire supporters, notably Elon Musk, are publicly calling for a reduction or elimination of the tariffs. As of April 9, Trump has agreed to put a pause on the tariffs except for China.

Trump has been publicly committed to tariffs since 1987 when he ran full page ads promoting protectionism. His inspiration is the trade policy of William McKinley, whose presidency predates the airplane, radio, and night baseball.

The proposed tariffs are a radical departure from 75 years of multilateral U.S. trade policy. The high tariff rates echo the Smoot-Hawley Tariff Act of 1930, a root cause of the Great Depression. The chart below shows how tariffs have declined over the decades.

source: J.P. Morgan

Down – maybe, maybe not

The market has taken back all gains posted since April of last year. To soften the impact of recent tumult, think of the decline as a temporary step back rather than a grievous loss. Even with the past year showing a flat performance, the longer-term lookback is rosier. As of this writing (April 9) the S&P 500 posted a three-year annualized gain of +5%. For five years, it was +13.6%.

Forward-looking market history

Markets have shown resilience following significant downturns. Looking at periods following declines of 10% or more, we find:

+11.7% average return after one year

+10.3% annualized return over three years

+9.6% annualized return over five years



These averages are drawn from a century of S&P 500 data, 1926 to 2024. Future results will vary.

A "tariff survival kit" for the long-term investor

Stay grounded within your time horizon. Is your holding period long enough to ride out short-term volatility?

• Diversify wisely. Diversification among asset classes (stocks and bonds for example) won't eliminate losses, but can reduce volatility.

  
  

• Eschew market timing. Emotional investing often leads to poor outcomes, especially trying to "catch the bottom."

  
  

• Lean on us. Every client situation is unique. Let's talk through yours and assess whether changes are indicated.

Perspective in uncertain times

In our four decades of advising clients, we have witnessed countless episodes when national leaders have caused anxiety and economic harm. As with the massive tariffs, this administration is forcing changes at a shock-and-awe pace. It is intentional that so many of us should feel unsettled.

Regardless of who is in the White House, the fundamental challenge for an investor is to maintain the long-term strategy. In past upheavals, we have done well by doing nothing. This may be another such instance. In the course of composing this newsletter, the S&P 500 bounced back +9.52% (April 9).

Clients who feel confounded and powerless about events, domestic and foreign, have been reaching out to us. Hearing them express those feelings is a not-so-obvious part of the planning paradigm. In those dialogues, we move onto where one may exercise control, their financial life and supporting their values.