The Impact of Tariffs on the Market
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The Market Reaction as Tariffs Take Effect
Stocks experienced an early bout of volatility this year, as tariff tensions weighed heavily on the markets in March. Initially, the concerns around tariffs were manageable, but when coupled with weakening economic data, investors found the uncertainty too significant to overlook.
Before tariffs took center stage, the U.S. economy was already set to moderate from last year’s near-3% growth. Weak retail sales figures in January and February led LPL Research to adjust its annual growth forecast downward, from 1.9% to 1.7%, acknowledging potential downside risks if trade tensions escalate further. Currently, the likelihood of a recession within the next year sits at about 30%, driven primarily by tariff-induced pressure on economic activity.
Tariffs inevitably increase costs for businesses, squeezing profit margins and, ultimately, translating into higher prices for consumers who are already cautious about inflation. Consumer spending patterns are responding to these pressures; some people are accelerating purchases to avoid higher costs later, while others are delaying spending entirely due to uncertainty. Compounding this anxiety are falling stock prices and rising layoffs within the federal government. Businesses, too, are hesitant to commit to large capital investments or new hiring until the impacts of tariffs become clearer.
Despite these concerns, the economic outlook still includes bright spots. Consumers benefit from healthy savings, steady income growth in recent years, and significant accumulated wealth, all of which support continued economic expansion. Additionally, slower economic growth naturally dampens inflation, potentially offsetting some tariff-related price hikes. The Federal Reserve may respond by cutting interest rates further, which could keep borrowing costs favorable. Moreover, corporate America is fundamentally robust, with earnings positioned to remain solid even amid significant tariff increases.
We may currently be experiencing peak uncertainty regarding trade. Historically, markets dislike uncertainty but often rally robustly as clarity emerges. Reflecting on the 2019 trade war period, the S&P 500 gained approximately 19% from August 2019 until just before the pandemic struck in early 2020. While replicating such a significant gain in the near future might be optimistic, a double-digit recovery through year-end seems achievable as tax cut extensions and deregulation plans come into view.
Interestingly, while the overall U.S. stock market saw declines in the first quarter, sectors such as U.S. value stocks and international equities showed resilience, with seven out of 11 S&P equity sectors posting positive returns. Bonds also advanced, reinforcing the importance of diversified investment portfolios.
Market volatility may linger as policies and their implications unfold. Historically, annual returns following a challenging first quarter tend to be subdued, yet current negative sentiment could indicate we are nearing a durable market bottom. Investors should anticipate a generally positive trajectory for stocks in the coming months.
To gain deeper insights, please listen to our attached podcast discussing the detailed market outlook and strategies for navigating current economic uncertainties.
New Year Outlook and Bus490 update
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Reflecting on 2024 while looking ahead for the new year
Stocks had another very strong year in 2024. In fact, 2024 marked the first time the S&P 500 has enjoyed a +20% gain in back-to-back years since 1997–98. Last year didn’t start out so optimistically though. The list of worries among stock-market bears included high valuations, narrow leadership by the largest technology stocks, rising long-term interest rates, election uncertainty, deficit spending, and more. Stocks rallied through all of that without so much as one 10% correction.
The stock market’s surprising ascent in 2024 offers some important lessons for investors:
- The herd is often wrong. Wall Street underestimated the S&P 500’s price at year-end by about 15%. Remember, positive years for stocks are about three times more likely than declines.
- The trend is your friend. Employing technical analysis can help investors avoid mistakes. In an upward-trending market, don’t take a detour because of some bearish narrative the market may not care about.
- Bull markets typically run for a while. They last more than five years on average and rarely end when the U.S. economy is growing, especially when the Federal Reserve (Fed) is cutting interest rates. The current bull market is about 27 months old.
- Earnings drive stock prices. The fundamental value of stocks comes from a company’s earnings. S&P 500 companies will likely grow earnings 10% in aggregate in 2024 and may do so again in 2025.
- Focus on the long term. Don’t get scared out of the market by the headlines if you’re a long-term investor. “Time in the market” beats “timing the market.” Waiting it out through down periods is the best approach for nearly all investors. Since 1980, the annualized return for the S&P 500 is 12.1%.
The U.S. economy also offered investors another lesson — that betting against the U.S. consumer is often a losing bet — especially an employed U.S. consumer. Mortgage refinances during the pandemic and the wealth created by higher stock prices added fuel for more spending, particularly from upper-income consumers.
These are good lessons to tuck away as 2025 gets underway. The coming year may not bring quite as much joy to your portfolio as 2024, given how much good news is being priced into the stock market currently. Inflation pressures may re-emerge, and geopolitical threats could upend rallies. But, with steady economic growth, a healthy job market, growing corporate profits, and continued investment in artificial intelligence, the ingredients for another profitable year are in place.Reflec
Rentals, LLCs, and Taxes. Best practice for your holdings?
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Optimizing Your Real Estate Portfolio: Rentals, LLCs, and Taxation Strategies for Affluent Investors
Many high-net-worth individuals find themselves owning vacation homes or rental properties, often as a byproduct of investment diversification or lifestyle choices. While they may not have intentionally pursued a career as real estate moguls, these holdings frequently constitute a substantial portion of their overall net worth. The crucial question then becomes: how should these valuable assets be structured to maximize returns, minimize liabilities, and optimize tax efficiency?
This critical topic is explored in a discussion featuring Corrie Koopman from Action Tax, joining host Brock to delve into the intricacies of rentals, Limited Liability Companies (LLCs), and the complex world of taxation.
Is there a place for Bitcoin and Crypto in a portfolio?
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There has been tremendous excitement around digital assets. However, navigating the world of finance can be daunting, as investors try and sort the news headlines from the facts.
Is there a place for Bitcoin and crypto in a traditional investment portfolio? That’s the question we explore on the latest episode of the Meaningful Dividends podcast. We examine the potential benefits, risks, and complexities of incorporating cryptocurrencies into your investment strategy.
LLC vs S-Corp: Choosing the Right Business Structure with CPA Joseph Anderson
Avoid Double Taxation
LLC or S-Corp?
Full Podcast Episode
Welcome to the latest episode of “Meaningful Dividends”! Dive into the key differences between LLCs and S-Corps with Joseph Anderson, a CPA from Duality Accounting. Discover how to choose the best business structure for your needs, as Joseph explains the tax implications, ownership flexibility, and practical considerations of each entity. Learn about the default tax treatment for LLCs, the option to elect S-Corp status, and the importance of paying a reasonable salary as an S-Corp owner. The discussion highlights the importance of consulting with tax professionals to make informed decisions that align with your business goals and strategy.
