Hokey Cokey policy
Hokey Cokey policy
Throughout much of 2024, US economic data came in better than expected, which laid the foundations for strong US equity performance. Expectations that Trump would introduce tax cuts to spur stronger profits have been replaced by a “Hokey Cokey” policy from the Trump Administration as Trump’s policy of “America First” takes effect. We are seeing a different President Trump in his second term compared to his first term. The general assumption at the beginning of the year was that he would talk big but act in a more measured way regarding tariffs and cutting government spending. The brazen approach to policy announcements suggests that Trump believes he has a mandate to take a more radical approach now, while more market-friendly policies, such as deregulation and tax cuts, may come later.
Announcements have created an uncertain environment for investors and businesses across the world. In recent weeks, we have seen announcements to apply tariffs on imports from China, but also the EU, Mexico and Canada. What is striking is that the announcement of tariffs follow reversals, and are then subject to reintroduction almost at a whim. On the 11th of March, Trump announced a doubling of tariffs on Canadian aluminium to 50%, and again called for Canada to join as the 51st State of the United States. The US auto industry has had to operate four different tariff regimes in four weeks. This is not a background conducive to long-term certainty and planning. The “America First” approach to policy making has ironically seen European equities outperform US equities and a weakening of the US Dollar. Investors appear to be derisking exposure to US assets.
Uncertainty is already weighing on US economic sentiment. Business sentiment as measured by the ISM Purchasing Manager Index, consumer confidence, and consumer spending all came in below consensus expectations. There is an increasing risk that higher-frequency economic data may add to investor concerns in the near term. The way that the maths works for calculating Gross Domestic Product (GDP) as a measure of economic activity, means that the surge in imports (as businesses tried to complete transactions ahead of the imposition of tariffs), may cause GDP measure to fall in coming months. This may distract investors in coming months and add to risk aversion as Trump’s noise may continue to set investors on edge.
What should long-term investors do now?
Market volatility is unsettling, but historically not unusual. If you've built an appropriately diversified portfolio that matches your time horizon and risk tolerance, it's likely the recent market drop will be a mere blip in your long-term investing plan.
Since 1980, the S&P 500 Index has fallen an average of 13.7% within any given calendar year, but is positive 78% of the time, with an average return of 10.3%. Whilst it is tempting to change investment policy and long-term strategy in the face of market volatility, the lesson of the past is to remain disciplined and only reorientate investment strategy when long-term objectives change. In each period of equity market losses it has felt like a significant change. A clear example of this was Covid, from which markets recovered quickly. But even in ‘normal’ times such as the market drops in 2016 and towards the end of 2018, and through Trump’s first term of on-off tariffs, equities found their footing. Whilst the actions of the Trump administration are worrying, (and contributed to our policy stance moving underweight US equities and favouring European equities), we suggest that like all things, this (Trump and his regime) too shall pass.
Don't try to time the markets. It's nearly impossible. Time in the market is what matters. While staying the course and continuing to invest even when markets dip may be hard on your nerves, it can be healthier for your portfolio and can result in greater accumulated wealth over time.
Maintain a diversified portfolio based on your tolerance for risk. It’s important to know your comfort level with temporary losses. Sometimes a market drop serves as a wake-up call that you’re not as comfortable with losses as you thought you were.
That said with Trump trying to change borders (with Canada) and appearing to enable Russia to disregard international treaties, alongside elevated US equity valuations, we can understand why investors are nervous.
Double digit declines are relatively normal even in years when the market rises (S&P 500)
Source: Artorius, Bloomberg
2019 redux
There are some similarities to 2018-19 in terms of tariff announcements and equity market sentiment. In 2018 and 2019, the Trump administration imposed several rounds of tariffs on steel, aluminium, washing machines, solar panels and goods from China, affecting more than $380 billion worth of trade at the time of implementation and amounting to a tax increase of nearly $80 billion.
The Biden administration maintained most of these tariffs and in May 2024, announced additional tariffs on $18 billion of Chinese goods for an effective tax increase of $3.6 billion.
The swings in the US equity market during 2025 do seem to rhyme with 2019. In 2018 Trump had begun to threaten China with tariffs. This escalated in 2019, which contributed to the jagged market journey through the first half of 2019. There was a ratchet up and down of tariff threats at the start of 2019 and by the end of 2019 most of the tariff talk had receded and markets had recovered.
Investors may have to get used to the volatility of language and policy pre-announcements translating into asset price volatility.
US equity market returns, mapping 2025 onto the period post March 2019 shows a similar reaction to Trump’s policies.
Source: Artorius, Bloomberg
Gerard Lane
Chief Investment Officer
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Important Information
All expressions of opinion reflect the judgment of Artorius at 14th March 2025 and are subject to change, without notice. Information has been obtained from sources considered reliable, but we do not guarantee that the foregoing report is accurate or complete; we do not accept any liability for any errors or omissions, nor for any actions taken based on its content. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. Past performance is not a reliable indicator of future results. Nothing in this document is intended to be, or should be construed as, regulated advice. Artorius provides this document in good faith and for information purposes only. Reliance should not be placed on the information contained within this document when taking individual investments or strategic decisions.
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