An Era of Policy Shocks
We are witnessing a historic inflection point in global trade policy. In recent weeks, the US administration has enacted sweeping tariffs—raising the average effective tariff rate from just 2.4% to 25.5%—with the stated goal of reshoring supply chains and reducing America’s trade deficit. These moves, labeled “Liberation Day” by President Trump, represent the most significant US trade policy shift in over 90 years, effectively marking the end of the free trade era.
Financial markets have responded in kind: stocks declined amid fears of slower economic growth and rising inflation. Volatility has surged, and uncertainty has become the dominant force driving investor behavior.
Markets in Motion: What the Numbers Show
- S&P 500 Index: Down ~17.6% from recent highs in December. This comes after two consecutive +20% calendar years.
- NASDAQ Composite: Down ~22.8% since December, reflecting investor concerns around global tech supply chains.
- Russell 2000 (Small Caps): Down ~26.6% since November, more exposed to higher input costs and limited pricing power.
- Treasury Yields: After initially falling in sympathy with rising equity volatility, the 10-year yield closed Wednesday (4/9) at 4.34%, or 17 bps HIGHER than the day before the Liberation Day tariff announcement. (It is possible this dynamic was a catalyst to President Trump’s decision to place a 90-day pause on the tariff effective date for most countries outside of China.)
- Commodity prices have also declined in anticipation of slower global demand, with oil prices hitting $64.01 per barrel for Brent Crude and $59.05 per barrel for West Texas Intermediate.
- The US dollar has weakened more than 6% since the tariff policy was unveiled—a move that amplifies inflationary pressures.
Short-Term Pain, Long-Term Implications
From a macro perspective, these tariffs act as a consumption tax. Input costs rise, squeezing corporate margins and consumer purchasing power. According to Alpine Macro, 68% of US manufacturing GDP depends on imported parts and semi-finished goods. Tariff-driven inflation, therefore, is likely to be temporary, followed by disinflationary forces as demand slows and household consumption is pressured.
Economic projections now show US GDP may decelerate from 3% (Q4 2024) to 1% by year-end 2025. Inflation is expected to temporarily rise above 4%, before moderating and the probability of a US recession has risen, driven not by financial excess, but by a policy-induced shock.
A Global Shake-Up, Not a Collapse
This is not a repeat of the 1930s. While the average US tariff rate may soon rival that of the Smoot-Hawley era, the globalized world economy is structurally deeper and more interconnected than it was a century ago. Services trade, cross-border investment and multinational business models create resiliency even amid policy turbulence.
Yet the consequences will not be evenly distributed. Export-heavy economies like China, Japan and South Korea will be disproportionately impacted. European nations and US allies like Canada and the U.K. may fare better if trade carve-outs or exemptions are negotiated.
Trump’s Tightening Constraints
President Trump faces mounting obstacles to his ability to maintain course on his current trade policies. A vulnerable Republican House majority and growing pressure from moderate lawmakers to assert more Congressional control over trade policy may create political pressure for President Trump to soften his stance. Yet, the most significant constraint isn’t political—it’s financial. Stubbornly high bond yields would limit Trump’s ability to fund growth-boosting stimulus, even as economic conditions deteriorate. At the same time, tariffs are stoking long-term inflation expectations, which in turn are suppressing bond demand. That keeps yields higher and reduces the government’s capacity to respond with fiscal easing—just as stimulus is most needed.
What Should Investors Do?
Volatility can test even the most seasoned investors. But this is not a time to abandon portfolios. It is a time to revisit and reaffirm disciplined, evidence-based investment principles:
- Remain Diversified
A global trade war amplifies economic uncertainty and broadens the range of potential macroeconomic outcomes. In such an environment, diversified portfolios are essential for mitigating risk across scenarios. Uncorrelated diversifiers, in particular, play a critical role in providing resilience—especially in the event of stagflation, where traditional asset classes may underperform. Real assets can mitigate the negative effects of inflation on purchasing power. International equities currently present more attractive valuations and lower portfolio vulnerability to potential policy errors. - Don’t React Emotionally
According to historical data, the average intra-year S&P 500 decline is -14%, yet the market ends the year in positive territory 73% of the time. Attempting to time the bottom has consistently underperformed staying invested. - Reevaluate Risk, Not Objectives
While defensive allocations may serve in the short term, investors should not deviate from strategic plans based on transient policy cycles. Policy-driven selloffs often present entry points, not exit signals. - Maintain a Long-Term View
Markets have always adapted: through wars, inflation, pandemics and political upheaval. Long-term equity investors have seen exponential wealth accumulation—even during decades marked by protectionism and volatility. Mitigating draw downs, prudently rebalancing and maintaining a long-term perspective will serve investors well during these trying times.
Final Thought: Calm Amid the Crosswinds
We are undoubtedly navigating a more fractured geopolitical and economic world. But while tariffs create market volatility, it’s the steady execution of a long-term investment plan that builds lasting wealth. As your investment team, we are actively monitoring this dynamic environment. Our strategic allocations reflect a dual objective: maintaining resilience in the face of an uncertain environment while preserving the agility to pursue emerging opportunities in a transitioning market. If you have questions or concerns about how these developments affect your personal portfolio, please reach out. We are here to offer clarity, context and confidence—every step of the way.
The information contained in this report is confidential and proprietary to Oxford and is provided solely for use by Oxford clients and prospective clients. The opinions expressed are those of Oxford Financial Group, Ltd. The opinions are as of date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. The information in this presentation is for educational and illustrative purposes only and does not constitute investment, tax or legal advice. Tax and legal counsel should be engaged before taking any action. Past performance is not indicative of future results. OFG-2501-26
