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To Your Corners
Investors are clearly jubilant after the announced pause of the Trump admin’s reciprocal tariffs. However, this is far from over.
While we have a 90-day pause on all countries (minus China), the facts on the ground still point to massive disruption to trade, and therefore earnings, GDP, and inflation.
The “more than 75 countries” that President Trump cited in his celebratory post on Truth Social still must come to terms with what may be formidable demands. The next 90 days, and the 90 after that very well may have many setbacks, negative news events, leaks, and disagreements.
Investors should celebrate this announcement for what it is. But it's far too early to claim victory.
None of us should be under the illusions that the uncertainty is over. Even assuming the best results with respect to our discussions with other countries, the $582B in trade between the US and China is completely at risk. Supply chains can’t shift overnight, and consumers and businesses will feel the impact.
This potentially on-going process of remaking world trade may still create huge unforeseen risks to US competitiveness, business growth, and market returns.
Zooming out, all this market turmoil took place while the economy is still strong. CPI results this morning surprised to the downside. This is probably the last time we’ll have a report posting falling inflation for a while. The labor market has also been strong and steady, but this too may weaken further.
In a boxing match, you are instructed to “protect yourself at all times”. We’re now in a boxing match with China (and others) over US’s central position within global trade. This was only the first round, and the economy is as fresh as it is likely to be for a while. These tariffs aren’t going to make the economy stronger over the next few quarters or years and we've already taken a few punches.
Investors should take this to heart with respect to personal finances and portfolio allocations. The rally yesterday was a gift for those who have been over their skis on risk.
In the last week:
If you were overexposed to stocks, leverage, or credit and suddenly wished you weren’t, then don’t wait for another chance to right-size your portfolio allocations.
OR
You’ve been too afraid to look, its time to check your portfolio mix to make sure you know how much of each asset class you have and make some adjustments.
What This Means for Investors
- Don’t overlook your emergency fund and any dry powder. If you’ve been draining your cash emergency fund to sink into the market, it might be time to replenish it. Don’t be greedy, you need a cash cushion on the sidelines.
- If you’ve been selling out in fear of what would happen, don’t find yourself sitting on the sidelines waiting to get back in 12 months from now. Build a portfolio you can confidently stick with through good and bad markets and put your money to work.
- Diversify and rebalance where needed. Many investors have been under-allocated to international markets and fixed income to their detriment in 2025. Consider alternatives like gold, or even Bitcoin, which may have value as non-correlated assets.
- Don’t day trade this market. Yes, yesterday was a historic single-day rally. Are you expecting those daily? Guessing which way the market will move, and when, is risky and harder than ever when the market is hanging on every rumor from governments home and abroad.
- If you don’t have a solid plan and clear investment policies to follow, create them or work with someone who can. Don’t let fear, emotion, or greed dictate your investment decisions.
Good luck.
Now touch gloves.