By: Reed C. Fraasa, CFP®, AIF®, RLP®
As we reflect on the recent market developments, it's crucial to maintain realistic expectations during this volatile period. While the stock market opened positively last Friday, the situation remains fluid, and conditions can quickly shift.
Early earnings reports, particularly from banks, suggest a positive outlook for the first quarter of 2025. Yet, stock market responses have remained modest, indicating cautious optimism rather than firm confidence. The economic impact of recently imposed tariffs may not fully emerge for several quarters.
In uncertain times like these, staying grounded and focused on what truly matters and what we can control is essential. The Greek philosopher Epictetus wisely noted, "It's not what happens to you, but how you react to it that matters." Maintaining your investment strategy and thoughtfully deploying cash into the markets during periods of volatility can be particularly beneficial.
Recent economic data underscores current uncertainty: The University of Michigan's preliminary Consumer Sentiment Index for April dropped significantly to 50.8 from 57.0 in March, marking its fourth consecutive monthly decline and the lowest reading since June 2022. This deterioration in sentiment reflects growing concerns among consumers and businesses as they adjust to an increasingly uncertain environment.
During heightened market volatility, investors traditionally seek safety in assets such as gold, the U.S. dollar, and U.S. Treasuries. Currently, only gold has performed as a reliable safe haven. Conversely, the U.S. dollar has experienced significant weakness, declining nearly 2% in one day, with further declines continuing thereafter. This recent decline represents the dollar's sharpest two-day drop since November 2022.
Similarly, U.S. Treasuries, typically dependable in uncertain markets, have also struggled. Long-term Treasury bonds, tracked by the iShares 20+ Year Treasury ETF, have dropped approximately 6.9% over four days—the largest decline since March 2020. These unusual market responses suggest a potential shift in investor sentiment, with growing interest in alternative safe-haven assets like gold and foreign currencies such as the Euro, Yen, and Swiss franc.
Economics editor Henry Curr from The Economist has expressed concerns regarding the long-term implications of recent tariff policies. Even if current tariffs were significantly reduced or removed, Curr warns the lasting damage to global trade relationships and economic stability could already be significant. He emphasizes that the unpredictability and rapid changes in tariff policies have heightened business uncertainty, discouraging long-term investments and complicating supply chain management. Businesses typically plan investments several years ahead, and the recent volatility has made long-term planning exceptionally challenging.
Additionally, even the tariffs recently settled by President Trump—a universal 10% tariff and a significantly higher 145% tariff on Chinese imports—will likely result in higher costs for businesses and consumers. Rising import prices due to tariffs may lead to higher inflation and reduced consumer spending, further slowing economic growth.
Ultimately, the recent tariff volatility has created lasting uncertainty. Even if tariffs were entirely removed, lingering doubts about policy consistency might deter businesses from committing long-term capital, given concerns that tariffs could be reintroduced at any time.
We closely monitor these evolving developments and encourage you to remain disciplined and measured in your approach. Please reach out if you have any questions or want to discuss your specific strategy in more detail.
The foregoing content reflects the opinions of Highland Financial Advisors, LLC, and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct.
Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns.
Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful or that markets will act as they have in the past.
Reed C. Fraasa is a CERTIFIED FINANCIAL PLANNER™ and founder of HIGHLAND Financial Advisors, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, and investment management. Reed has 30 years of experience as a fiduciary advisor and is the author of The Person is the Plan®, a unique financial planning process. Reed was a frequent guest contributor on PBS Nightly Business Report and has been featured in the New York Times, Wall Street Journal, and Star Ledger newspapers.