By: Michael K. Warne, AAMS®
<This is an excerpt from an email we sent to Synergy Capital clients on April 3, 2025>
Tariffs, Market Volatility, and Your Investments: Our Perspective
Like you, I watched today’s market drop with all-too-familiar knot in my stomach. Seeing the S&P 500 fall 4.77% and the NASDAQ tumble almost 6% isn’t easy for any of us. These moments test our resolve as investors, and I want you to know that I understand the emotional toll these large market swings can take. I also want you know that our team is very much on top of the situation, much like we’ve been in countless other scary markets over the last two decades.
Diversification is working this time
Unlike the last broad market decline we had in 2022, when almost everything went down together, diversification is actually working now. This is exactly why we built your portfolios with your specific Risk Number in mind. For those who need a refresher, your Risk Number is that personalized measurement (on a scale of 1-99) we calculated to align your investments with your comfort level for volatility. Whether you’re at the conservative end of the spectrum (lower Risk Number) or the more aggressive side (higher Risk Number), your portfolio was designed specifically for moments like this.
What’s happening now?
Today’s selloff is in response to the new tariff structure announced after the close yesterday. In short:
- The baseline tariff is 10% on imports, plus additional country-specific surcharges, reaching as high as 79% for China. Yes, you read that right.
- Certain sectors like semiconductors, energy, pharmaceuticals, and critical minerals have been exempted.
- The effective overall tariff rate across all imports is estimated between 22-27%.
- These tariffs could raise about $625 billion for the US Government, with some saying it could potentially offset some or all corporate taxes.
Two perspectives on where we go from here
One side sees these “shock and awe” tariffs as negotiation tools rather than permanent policy. I’m not sure anyone took President Trump that seriously with tariffs—well, they are now. Several countries are already moving toward compromise vs. retaliation. The implementation dates (April 5 and 9) provide a window for diplomatic solutions, suggesting markets may recover once this initial shock subsides.
The more cautious view highlights how tariffs typically hit inflation immediately through price increases, while the negative impact on economic growth follows with disinflation. Some countries will fight fire with fire, escalating tension even further. I’ve read a couple of research reports that say stagflation/recession odds have increased from 10% in January to about 50% now, but those odds swing wildly by the day.
Currently, I’m in the camp of the former, understanding that the extreme nature of these proposed measures points to a higher likelihood that these will ultimately prove short-lived. The elementary way the administration calculated each country’s surcharge suggests to me that the White House is posturing for negotiation rather than enforcement.
What this means for your portfolio
The good news is that your portfolio is tailored to your individual Risk Number. Our conservative clients have portfolios built to weather this kind of volatility with minimal disruption. Our more aggressive clients may experience more pronounced short-term fluctuations but gain greater long-term growth potential.
Looking back at market history, these kinds of shocks often create opportunities. Active management and diversified portfolios are now outperforming passive index strategies and the lauded “Mag 7” stocks. As always, we aim to take full advantage of what the market gives us.
In summary
This is a very fluid situation, and handicapping Donald Trump has proven quite difficult for most strategists—political and economic. As the situation changes, so could our strategy. Whatever path this takes, it will be filled with positive & negative surprises; and if past is prologue, it’ll all be okay in the end.