Markets were rattled yesterday morning with the news over the weekend that President Trump planned to apply tariffs of 25% on trade with both Canada and Mexico, and 10% on China. With both neighboring countries quickly stating that they would respond with retaliatory tariffs of their own, it sparked fears of a wider trade war and sent global markets into a tailspin Sunday night. Thankfully, by the end of the trading day Monday there was additional news that the proposed tariffs on Canada and Mexico had been postponed for one month, allowing markets to claw back losses and finish only slightly lower on the day.
Looking ahead, this latest drama was perhaps only a taste of what’s to come as the new administration gets to work on implementing their policy agenda over the next several weeks and months. The oft-repeated mantra that “markets hate uncertainty” remains true, and it can also weigh on business sentiment. For now, investors and businesses are still holding out hope that eventual movement related to tax cuts and deregulation will more than offset any potential headwinds that are whipped up by tariffs and deportations. However, with so many “unknowns” at the moment, the timing and substance of future policy changes are clearly a wild card that will take time to digest. This has the potential to create a volatile backdrop as the process unfolds, with plenty of headline risk.
Ultimately, we remain optimistic that stocks can move higher this year thanks to an ongoing economic expansion, solid corporate earnings growth, and a less restrictive Fed. Longer-term investors can try to cut through some of the noise by remaining focused on those important drivers while not getting too wrapped up in every new development as this plays out, even though it may make for a bumpier ride at times.
Source: Bloomberg, Baker, Bloom & Davis, as of 1/31/25
Source: Bloomberg, Baker, Bloom & Davis, as of 1/31/25
Carl Noble, CFA
Senior Vice President of Investments
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