Timely & Relevant News: Trade, Tariffs and Your Money
March 7, 2025
We are reaching out to our clients and community in light of the recent market volatility with a reminder. Historically – and for a variety of different reasons - the S&P 500 typically undergoes three corrections of 5% annually, a 10% drop once a year, a 15% drop every two years, and a bear market of 20% or more every three years. This pullback may present potential buying opportunities for long-term investors.
According to LPL Research, “Despite the latest bout of tariff headlines adding to downside pressure on equities, market watchers should not lose sight of the bigger picture. Tariffs are frequently leveraged as a negotiating tool, and the recent reprieve for Canada and Mexico proved this round was no different.
After back-and-forth headlines, goods under the North American trade agreement (USMCA) were exempted from 25% levies until April, allowing time to continue negotiations.
That being said, it’s important to wait until tariffs stick to evaluate the economic impact, which is likely less than anticipated due to the possibility that affected countries could respond by devaluing their currency, which can offset some of the economic burden caused by tariffs.
Inflation jitters have surfaced around tariffs, particularly steel and aluminum tariffs, which could be discussed as early as next week. However, foreign countries bore close to half the cost of the 2018 steel tariffs by lowering their prices in the U.S. market, according to the National Bureau of Economic Research (NBER), mitigating the inflation impact in the U.S."
Recession Jitters and Sentiment
The recent market decline has reignited discussions about the potential for a recession. As investors reacted to global uncertainties and a mix of economic data, the overall market sentiment shifted towards caution. The decline in equities reflects growing worries about global conflict and the potential for slowing economic growth.
Markets Vs. Economy
The markets and the economy are often viewed as the same, but they are not the same. The stock market reflects investor expectations about future earnings and economic conditions, while the economy is measured by real data like Growth Domestic Product (GDP) growth, employment rates, and consumer spending. For example, in 2020, the stock market rebounded quickly after the initial COVID-19 crash, even as unemployment remained high and economic growth was slow. Markets move on sentiment, forecasts, and liquidity, whereas the economy is driven by actual production, wages, and business activity.
A Possible Resolution
It is often said that markets hate uncertainty. There has been a lot of uncertainty lately with the back and forth on tariffs and the headlines, which has been driving the volatility. A potential catalyst to the upside for the markets could be a resolution or clarity on trade agreements between the U.S., Mexico, and Canada. If a deal is reached or tariffs are lifted, it could ease market fears, boost investor confidence, and provide stability, potentially driving markets higher.
Economic Growth
It's important to understand that a recession is typically defined as two consecutive quarters of negative GDP growth. In contrast, the U.S. economy expanded by 2.3% in the fourth quarter of 2024, a positive sign for the world’s largest economy.
Labor Market
GDP is one of several factors that defines a recession. Historically, recessions occur with high unemployment. As of February 2025, the U.S. labor market continues to show resilience. The economy added 151,000 jobs in February, slightly below the anticipated 170,000. However, the jobs report was an improvement from January's 125,000. The unemployment rate edged up to 4.1% from 4.0%, which is still generally considered healthy.
What Happens Next?
Our Covenant Wealth Strategies Investment Team is closely paying attention to market signals in an effort to make wise and appropriate choices that align with our client's investment objectives.
If you have specific questions or would like to discuss your own investment strategy or financial planning needs, we welcome you to call us at 302.234.5655 or email us at contactus@covenantwealthstrategies.com to set up time to discuss further.
Disclosures:
All indexes are unmanaged and cannot be invested into directly. Past performance is no guarantee of future results.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This Research material was prepared by LPL Financial, LLC, FactSet.