The April 2020 dip: A Tariff-Fueled Downturn

In the first week of April 2020, the U.S. stock market faced a notable downturn, the most pronounced as 2008. This volatility stemmed from investor anxiety surrounding President Donald Trump’s proclamation of new tariffs. Tariffs, essentially taxes on imported goods, can have a ripple effect throughout the economy, impacting company profits, consumer prices, and international relations.

On April 3, 2020, the Dow Jones Industrial Average (DJIA) plummeted nearly 4%, and the nasdaq Composite followed suit with a 6% drop. The sell-off continued the next day, with the DJIA shedding another 5.5%, while both the Nasdaq and the S&P 500 closed down almost 6%.

How Tariffs Work: Tariffs are taxes imposed on goods imported into a country. The goal is often to protect domestic industries by making imported goods more expensive, thus encouraging consumers to buy locally produced items. Though, tariffs can also lead to retaliatory measures from other countries, resulting in trade wars that disrupt global supply chains and harm economic growth.

Beyond the immediate market reaction, tariffs can introduce uncertainty and instability into the stock market. Companies that rely on imported materials or export goods to countries targeted by tariffs may experience reduced profits, leading to lower stock prices. Sectors heavily reliant on international trade, such as manufacturing, technology, and agriculture, are particularly vulnerable.

The impact of tariffs isn’t limited to large corporations. Small businesses that import goods or rely on exports can also suffer, perhaps leading to job losses and economic hardship within local communities.

Expert Insights on Market Volatility

Dr. Travis Sholin, CEO and wealth advisor at Keystone Financial in Omaha, has been guiding clients through market fluctuations for over four decades. He offered a calming viewpoint during the April 2020 turbulence:

We always remind people that this has happened before.
Dr. Travis Sholin, CEO and Wealth Advisor, Keystone Financial

Sholin wasn’t surprised by the market’s reaction, noting that ancient data from the S&P 500 shows that even after steep declines, the market has generally “finished positive” over the long term.

We’re down about 15% year-to-date,so we’re right on par with historical averages.
Dr. Travis Sholin, CEO and Wealth Advisor, Keystone Financial

Staying the Course: Long-Term Investment Strategies

Sholin emphasizes the importance of a long-term perspective, particularly when markets become volatile. He notes that investors frequently enough become anxious when the market drops by 10%, 15%, or 20%. Though, he reassures his clients that historically, those who maintain their investments tend to outperform those who panic and sell.

He points to S&P 500 data over a 20-year period, which illustrates the benefits of staying “fully invested.” According to this data, individuals who remained invested throughout that period made nearly $72,000 more than those who tried to time the market.

The Cost of Missing the Upswing: The same data reveals that missing just the 10 best days in the market can significantly reduce returns,potentially costing investors nearly $39,000. This highlights the challenge of timing the market and the potential risks of trying to predict market movements.

He further advises:

The best way to be prepared is to be prepared for the long haul. Not to make changes just because of short-term things.
Dr. Travis Sholin,CEO and Wealth Advisor,Keystone Financial

Sholin’s advice aligns with the principles of value investing,which emphasizes buying and holding assets for the long term,regardless of short-term market fluctuations. This approach requires discipline and patience but has historically proven effective in generating long-term wealth.

He also recommends that individuals save enough money to cover 15 to 20 years of retirement. When it comes to 401(k) plans, Sholin offers straightforward advice:

My best advice is that just understanding history, understanding that markets go up and down, understanding that staying invested statistically has been the best bet.
Dr. Travis Sholin, CEO and Wealth advisor, Keystone Financial

Navigating Tariff-Induced Uncertainty: A practical Guide for Investors

While a long-term investment strategy is crucial, there are also steps investors can take to mitigate the risks associated with tariffs and other geopolitical events:

• Diversify your portfolio:
  Spreading your investments across diffrent asset classes, sectors, and geographic regions can help reduce risk.
• Rebalance regularly:
  Periodically rebalancing your portfolio ensures that your asset allocation remains aligned with your risk tolerance and investment goals.
• Focus on quality:
  Investing in companies with strong balance sheets, consistent earnings, and a proven track record can provide a buffer during market downturns.
• Consider hedging strategies:
  Using options or other hedging instruments can help protect your portfolio against specific risks, such as currency fluctuations or commodity price volatility. Consult with a financial advisor to determine if hedging is appropriate for your situation.
• Stay informed:
  Keep abreast of economic and political developments that could impact your investments.

Beyond the Portfolio: Tariffs and the american Consumer: While the stock market’s reaction to tariffs is closely watched, it’s crucial not to overlook the impact on everyday Americans. Tariffs often translate to higher prices for imported goods,affecting consumers directly. Consider the potential effects on items ranging from clothing and electronics to automobiles and agricultural products.

Consumers may see higher prices at the checkout counter, potentially impacting their purchasing power and overall standard of living. This is particularly relevant for low-income households,which may spend a larger portion of their income on essential goods that are subject to tariffs.