Recent Market Volatility & Reaction to Tariffs [Webinar Summary]

Presenters: Andy Pratt, CFA and Adam Newman, CFA, CFP®, MT, RICP®

Here is the webinar recording from April 3rd, 2025. You can browse the topics discussed and the main takeaways using the sections and time stamps below:

Click the time stamp in each section title, and you will jump right to that part of the video on a new screen.

01:12 - Historical Context for Tariff Negotiations
03:09 - 'Liberation Day' Tariff Announcement
04:47 - Understanding Tariffs
08:22 - Trump's Intentions with Tariffs
12:46 - Tariffs vs. Inflation
15:35 - Economic Impact of Tariffs
18:27 - Federal Reserve Response
21:30 - Market Reaction to Tariffs
24:39 - Historical Market Response to Major Events
26:29 - Volatility in Bull Markets
28:36 - How We React to Market Volatility
36:35 - Client Opportunities During Volatility
42:00 - Q&A Session

Historical Context for Tariff Negotiations (01:12)

• 2018-2019 Border Wall negotiation - 35-day government shutdown used as leverage for funding
• 2018-2020 NAFTA replacement - "worst trade deal ever" threats used to bring Canada and Mexico to the negotiating table
• 2018-2020 China Trade War - tariffs used as leverage, resulted in Phase One trade deal in 2020
• Pattern of using "shock and awe" announcements as a negotiation strategy

'Liberation Day' Tariff Announcement (03:09)

• New tariffs announced include 10% flat tariff across all imports
• Additional tariffs on net exporters
• Market had expected some tariffs but was surprised by the scope
• Trump indicated tariffs could be reduced if countries remove trade barriers
• Current uncertainty about final implementation and outcomes

Understanding Tariffs (04:47)

• Tariffs are taxes on imported or exported goods
• Example: $12 foreign shirt with 25% tariff costs $15 when imported to US
• Tariffs are paid by the importer, not the exporting country
• Companies then decide whether to absorb costs or pass them to consumers
• Goal is to make domestic goods more competitive relative to imports

Trump's Intentions with Tariffs (08:22)

• Three main goals outlined:
  • Economic independence - reshoring manufacturing to the US
  • Revenue generation - potentially to offset tax cuts or reduce deficit
  • Removing barriers to entry - making US companies more competitive overseas
• Debate about whether this approach will follow historical pattern of negotiation or represent a more permanent policy shift

Tariffs vs. Inflation (12:46)

• Tariffs create one-off price shocks to specific goods
• Different from structural inflation seen in 2022
• Example from previous tariffs: laundry equipment saw initial price spike but then declined as competitive dynamics adjusted
• Federal Reserve views tariff-induced price increases differently than broader inflation

Economic Impact of Tariffs (15:35)

• Tariffs alone don't typically cause a recession
• However, uncertainty can impact business and consumer behavior
• Current economic backdrop remains strong despite slowing
• Labor market, profit margins, and retail spending remain positive
• Question remains whether this will be a short-lived negotiation or a longer-term policy

Federal Reserve Response (18:27)

• Fed has dual mandate: full employment and price stability
• Fed Chair Powell has indicated they won't overreact to tariff-induced inflation
• Will distinguish between structural inflation and one-time price shocks
• Focus remains on long-term inflation trends rather than temporary tariff impacts

Market Reaction to Tariffs (21:30)

• S&P 500 down 4%, NASDAQ down 5%, Russell 2000 down 6% on announcement day
• Asian and European markets also fell
• Market surprised by the scale of tariff announcements
• VIX (volatility index) elevated but not as high as might be expected given the sell-off

Historical Market Response to Major Events (24:39)

• Average S&P 500 return one year after major geopolitical events: +14.25%
• Examples include Korean War, Cuban Missile Crisis, Gulf War, 9/11, Brexit, COVID
• 2018 China tariff situation saw a V-shaped recovery after initial 20% selloff
• Markets tend to anchor to corporate profits and earnings over time

Volatility in Bull Markets (26:29)

• 5% pullbacks are normal and frequent in bull markets
• Historical data shows most bull markets experience multiple 5-10% corrections
• About 80% of 10% corrections do not turn into bear markets (20%+ declines)
• Volatility is the price investors pay to achieve long-term equity returns

How We React to Market Volatility (28:36)

• Two main approaches were discussed:
  • Asset allocation strategies - balancing stocks, bonds, and alternatives based on risk tolerance and goals
  • US equity strategy - focusing on quality stocks and adjusting style/size factors
• Market volatility often creates opportunities for stock selection
• Recent shift from 60/40 growth/value split to 50/50 split in response to changing market dynamics
• Increased allocation to large caps (80/20 large to small) due to small-cap weakness

Client Opportunities During Volatility (36:35)

• Market pullbacks create buying opportunities for cash on the sidelines
• Time to reassess risk tolerance if current volatility is causing stress
• Good opportunity to review financial plans and ensure proper asset allocation
• Reminder that most corrections don't turn into bear markets
• Importance of staying invested for long-term goals

Q&A Session (42:00)

• Duration of market downtrend - no precise prediction but corrections typically don't last long
• Impact on style shifts - moving from 60/40 growth/value to 50/50 as value stocks show better resilience
• Understanding tariff revenue - importers pay tariffs and either absorb costs or pass them to consumers
• Protective nature of stock selection - quality and value factors typically provide some downside protection
• Investing cash reserves - generally a good opportunity if the time horizon is 5+ years

The next quarterly webinar is scheduled for April 16th at 12:30 PM Eastern time, where the team will provide further updates on market conditions and investment strategies.