CWG Investment Committee: Market Update - Tariff Selloff

What is Happening?
Last night President Trump announced sweeping tariffs that exceeded most analysts' expectations. This morning, at the opening bell, the S&P 500 was down about 3%, while the Nasdaq fell more than 4%. Companies heavily reliant on Chinese-manufactured goods, such as Apple, Nike, and Best Buy, saw declines of over 8%. This follows a difficult March, during which the S&P 500 and Nasdaq dropped 5.8% and 8.2%, respectively.

Why Are Tariffs Bad for the Economy and Markets?
Tariffs function as a tax on trade, increasing costs for businesses and consumers, which can erode corporate profits, slow economic growth, and fuel inflation.

Markets tend to react negatively to tariffs due to concerns over disrupted supply chains, retaliatory measures from trading partners, and heightened uncertainty in global commerce. Some economists warn that if these tariffs remain in place for an extended period, the U.S. and other economies could slip into recession.

What Happens Next?
The new baseline 10% tariff on all imports takes effect tomorrow, while the reciprocal tariffs will be implemented on April 9. Other countries will have the opportunity to negotiate reductions by complying with White House demands or risk escalating a trade war through retaliatory tariffs. Wall Street will assess the implications of these developments over the coming days and weeks.

We receive and utilize information directly from the largest asset managers in the world. We anticipate continued volatility, both upward and downward, and will adjust portfolios as new information emerges.

Is There Good News?

• Resilient Economy – The broader economic picture is more resilient than headlines suggest. Growth remains solid, and corporate earnings, though under increased scrutiny, have largely exceeded expectations. Many high-quality companies are now trading at more attractive valuations. Sentiment has turned notably negative over the past two months, and tariff discussions have fueled fears of a trade war and higher inflation, though history suggests these concerns may be overstated. Market corrections like this often set the stage for strong rebounds.
• Baked-In? Markets are forward-looking and tend to price in bad news before it fully materializes. Much of the negative impact from tariffs may already be reflected in asset prices following March’s pullback.
• Peak Tariffs? Analysts suggest these newly announced tariffs may represent a peak rather than a baseline, with room for reductions through negotiations. If so, the market could interpret this as a potential relief.
• Only Three Countries Really Matter – Mexico, Canada, and China accounted for over 40% of U.S. trade in 2024. Notably, no new tariffs were announced for Mexico or Canada. China, however, faces a significant 54% total tariff rate, making it the most consequential player in this situation.

Ongoing Communications

During periods of heightened market uncertainty, we believe in over-communicating. We will continue providing these timely updates to keep you informed on market developments and how we are managing your capital. Please also review our monthly letters for deeper insights into our market outlook and investment strategy.

If you have additional concerns, please reach out to myself by responding to this market update.