The Truth about Tariffs...

The recent sell off across global markets has everyone worried. Are we in the middle of a global meltdown? Is there a recession coming? Is Trump going to reverse his policy, or worser yet - is he going to double-down against retaliatory measures adopted by foreign countries?

The truth is...no-one knows. And anyone who tells you they do, should be considered with a pinch of salt. We have not been here before (at least not since the 1930's), and as such, we are in uncharted territory.

Having said that, market corrections, and massive equity sell offs, happen regularly (albeit for alternative macro-economic reasons). Therefore, by assessing these historic events we can try and gain an indication as to what may come next.

 "History doesn't repeat itself, but it often rhymes." ~ Mark Twain

Since 1950, the S&P500 has finished a calendar year with losses, 21.62% of the time (1950 - 2025). Two of the most memorable years would have been 2022 (after the Ukrainian invasion, huge inflation and runaway interest rates), a loss of 18.10%. A few years prior, in 2008, the markets ended the year with a 37% loss, the effects of the global credit crisis.

However, what we should look at, is the occurrances of markets returning to positive territory after such losses. Whilst 2008 was the worst year since 1950, 2009 lost a further 27.6%. Having said that, the year actually finished with a positive return of 26.5%, after experiencing the large intra-year drawdown. 2009 was not an exception, in 2020 we had a 33.09% intra-year drawdown (thanks to COVID), but still finished the year with 18.4% growth. Looking further back to 1970, there was a 25.9% intra-year drawdown, yet the year still posted a 3.6% annual gain. Still further, in 1950, there was a 14% loss before ending the year with a 30.8% gain.

This evidences that markets do experience massive intra-year losses, and sometimes this does indeed result in the year ending in negative territory. However, it also demonstrates that markets are resilient and even after massive losses, the markets do often recover (and indeed in a rather short period of time).

By assessing the last 74 years, the average intra-year drawdown was -13.6%, and the average annual return has been 11.6%. All we can say is "We've been here before".

The best course of action to take right now is...no action. Stay the course, follow through with the strategies. By liquidating your portfolio now, you will be crystallising the losses and research has shown that people are often too late to get back into the markets and benefit from the recovery phase, which often follows a intra-year correction.

It is times like these where your financial advisor should be on hand to provide guidance, clarity and reassurance. It is our jobs, as dedicated professionals, to advise our clients during tumultuous times.