This week, I took some extra time to provide commentary on the rapidly evolving tariff situation in the U.S. The last time we started a write-up, the situation changed at the eleventh hour, delaying the tariff implementation by a month. Despite this uncertainty, global markets remained relatively passive leading up to the second deadline on March 4th, as many believed the tariffs were merely a negotiation tool. However, at that time, Trump followed through on his promises, implementing tariffs on Canada, Mexico, and China. Then just two days later, on March 6th, Trump again delayed tariffs on Canada and Mexico until April 2nd for any goods that are covered under the US/Mexico/Canada Trade Agreement. Markets didn’t rally this time off the news as I think at this point they want to see some form of agreement not just a push down the road with another month of uncertainty.

 

Many may not recall that back in December 2018, similar tariffs were placed on China, triggering a sharp decline in the S&P 500, which fell over 10% that month. However, in January 2019, a partial deal was reached, and Trump declared a win for America. As a result, the market rebounded, recouping nearly all its December losses and ultimately finishing 2019 up just over 30%. I’m not suggesting history will repeat itself exactly, as Trump’s stance seems more entrenched this time. However, this serves as a reminder that reacting irrationally to uncertainty rarely leads to the best outcomes.

 

Source: www.zerohedge.com

 

A common question I’ve been asked is: What are we doing in response? It’s a fair question and one I’d be asking in the same position. As I mentioned in my last email, we’ve been reviewing our holdings, cash positions, and exposure to businesses with cross-border revenue. We’ve made adjustments accordingly and are confident in our positioning. There’s ongoing discussion about high valuations in the U.S. market, which we acknowledge. However, much of this is driven by a handful of large-cap names, as the S&P 500 is market cap-weighted. Our portfolios are not overweight in the same way, which is one of the benefits of active management. While higher valuations can lead to sharper market reactions to uncertainty, selling into volatility has never proven to add value for clients. While the instinct to make changes is understandable, the best approach remains to hold your portfolio. If we’ve done our job well—which I believe we have—your portfolio is positioned to weather this with minimal, if any, financial impact. If we make changes, it will be to add to high-quality businesses that have been unfairly sold off as the market undergoes a price discovery phase, which is where we are now.

 

I’ve also heard the sentiment that this time is different and that this President is unlike any other. I couldn’t agree more—no one knows exactly what Trump will do next. However, while politics and markets may feel closely linked in the short term, over the long run, the market is driven by businesses and their earnings, not headlines or individual political figures. In the short term, uncertainty can lead to volatility, which is uncomfortable, but long-term market growth is fueled by corporate profits. History has shown that market downturns, while difficult in the moment, are the price we pay for long-term returns. As I heard recently, “Markets will go higher on good news, sometimes even on bad news, but uncertainty is what they really don’t like.”