Tariff turbulence
You may have heard about tariffs being announced in the U.S. on a day being touted as “Liberation Day.”
As a result, there have been sharp reactions in global markets, and particularly in the U.S., with the S&P 500 dropping over 10% in the last 2 days.
This occurrence is one of the biggest 2-day drops that U.S. stocks have ever seen, and we are expecting further market volatility in the coming days.
Navigating the uncertainty:
While volatility periods can be unnerving for investors, they often create opportunities for active managers of your portfolio. Markets often have knee-jerk reactions to announcements like these and then settle down as investors digest the long-term impacts. These knee-jerk reactions can present opportunities.
Fund managers are reducing exposure to the U.S. and increasing exposure to Europe, Asia, and Emerging Markets.
They are also focusing on active currency management, specifically through unhedged or partially hedged positions. This strategy is particularly effective during global market corrections, as the New Zealand dollar typically depreciates in such scenarios.
It’s also important to note that the defensive part of your portfolio (consisting of cash and bonds) acts as a shock absorber to your portfolio returns. The cash and bond returns have been positive since the start of this year.
Asset classes like infrastructure further diversify your portfolio.
We would like to take this opportunity to explain and educate you about what has happened, a summary of observations, what we are doing to effectively manage your portfolios, and some recommendations for how to handle these uncertain times.
You can rest assured that the Trilogy team is working with our consultants and fund managers to minimise risk and to maximise any opportunities that the uncertainty might create going forward.
What happened
Liberation Day: On "Liberation Day," April 2, 2025, U.S. President Donald Trump introduced sweeping tariffs aimed at reshaping U.S. trade practices and boosting domestic manufacturing.
What is a tariff? A tariff is a tax or duty imposed by a government on imported goods and services. The purpose of tariffs is to make foreign products more expensive, encouraging consumers to buy domestically produced goods instead. Tariffs can also be used as a tool in trade policy to protect local industries, reduce trade deficits, or retaliate against other countries' trade practices. However, they can lead to higher prices for consumers and potential trade disputes between nations.
What tariffs were implemented?
Universal tariffs: A 10% tariff on all imports, targeting goods from all countries, including New Zealand.
Reciprocal tariffs: Higher tariffs on countries with significant trade deficits or perceived barriers to U.S. exports (e.g., China 34% tariff, the European Union 20%).
Sector-specific tariffs: A 25% tariff on foreign automobiles and auto parts.
Why did Trump announce tariffs? To address what was perceived as an imbalance in trade, the U.S. administration argued that other countries had taken advantage of their open market whilst protecting their own. Noting that U.S. tariff rates are comparatively low, the administration is using reciprocal tariffs as a strategic tool to encourage trading partners to reduce their own trade barriers.
Summary of observations
Share market reactions: The share market has reacted strongly as a result of the harsher-than-expected tariffs.
NASDAQ: down 22.9% (currently 15,587.79, from a peak of 20,204.58 in December 2024).*
S&P500: down 17.5% (currently 5,074.08, from a peak of 6,147.43 in February 2025).*
Dow Jones Industrial Average: down 15.0% (currently 38,314.86, from a peak of 45,073.63 in December 2024).*
Currency market reactions: Currency markets have also reacted quite strongly, with currencies such as the New Zealand dollar and the Australian dollar weakening against the U.S. dollar, whereas currencies like the Japanese yen and the Swiss franc have strengthened against the U.S. dollar.
Volatility: These volatile market conditions have led to broad pullbacks in investing, consuming, and trading, with importers and exporters holding off on trades until there is more certainty around the effects of these tariff policies. We can expect further volatility in the days to come.
Responses from other countries: While China has imposed a reciprocal 34% tariff on U.S. imports, over fifty other countries have reached out to the U.S. to negotiate these tariffs.
*These figures are accurate at the time of writing on 7 April 2025.
What we are doing
Diversification: Portfolio diversification is key in how we manage investment risk. This involves investing across a variety of asset classes, such as cash, bonds, infrastructure assets, listed property, and equities, to mitigate risk.
Goals-based investing: We implement strategies that are specifically designed around your personal goals and priorities to ensure you have sufficient cash to meet your requirements.
Strategically increasing allocation to cash and bonds: Cash and bonds are a good diversifier during volatile times.
Keeping you educated and informed: The most important tool we can give you during these uncertain times is guidance/advice and knowledge. We will continue to provide information and keep you posted on current events as they unfold.
Our advice
Maintain a long-term view: Periods like this remind us why we diversify and why we invest for the long term. As you can see in the below graph, over the decades, equity markets have gone through wars, recessions, political upheaval, and trade tensions and have consistently rewarded patient investors. By focusing on short-term market noise, you risk losing out on the recovery phase, which can be as rapid as the initial decline.
Manage your emotions: We recognise that people can become anxious when there is uncertainty around money and investments, and that can lead to poor decision-making. Your investment strategy has been built with volatile periods like this in mind. Successful investors follow the approach of “time in the market” and not “timing the market.” We recommend practicing emotional discipline and relying on facts and figures when making financial decisions.
Focus on your goals: In times like these, it’s important to focus on your long-term goals and the strategy that will lead to achieving them. Our goals-based investment approach ensures you have enough money to meet your short-term financial needs, as well as the right mix of investments to achieve your medium- and long-term goals.
Understand how the market works: Markets will always react to events, both positive and negative. No investment portfolio is immune to these reactions. If you have a well-diversified portfolio, such as those that we recommend, you will win over the long term.
Remember the positives: There are amazing developments constantly happening around the world, including innovation in technology and modern healthcare, which are leading to improved productivity and increased longevity. Oil prices have also recently dropped, which should lead to cheaper prices at the pump.
Get in touch: The Trilogy team is here to support and answer any questions you may have. We understand these times can be concerning, and we want to assure you that your portfolio is being actively managed to minimise potential losses. We will also keep you informed of any further developments.
If you would like to discuss your current portfolio, retirement planning needs, or any other financial matters, please feel free to give our office a call at 09 553 8928 or email us at info@trilogyfs.co.nz.
Sincerely,
The Team at Trilogy Financial Solutions
