Gill Capital Partners April 2025 Market & Tariff Update
We realize that the market volatility we’re experiencing is unsettling, so we want to provide a brief update and offer some perspective into what’s happening in markets and the economy. Before getting into our views, we wanted to provide a quick update on yesterday’s tariff announcement and how the market is interpreting it.
Tariff Update
On April 2, 2025, President Donald Trump announced significant changes to U.S. trade policy, introducing new tariffs aimed at addressing trade imbalances and promoting domestic manufacturing. Below is a high-level summary of the announcement:
Universal tariff implementation: A baseline 10% tariff will be imposed on all imports into the United States, effective April 5, 2025.
Country-specific reciprocal tariffs: Additional tariffs will target approximately 60 countries with which the U.S. has significant trade deficits. Notable examples include:
China: An additional 34% tariff on top of an existing 20% tariff, totaling a 54% tariff on Chinese imports.
European Union: An additional 10% tariff, resulting in a total of 20% on EU imports.
Japan: An additional 14% tariff, totaling 24% on Japanese imports.
South Korea: An additional 15% tariff, totaling 25% on South Korean imports.
Vietnam: An additional 36% tariff, totaling 46% on Vietnamese imports.
Taiwan: An additional 22% tariff, totaling 32% on Taiwanese imports.
Exemptions: Canada and Mexico are exempt from these new tariffs under existing trade agreements. However, previously announced tariffs remain.
Implementation Dates:
The universal 10% tariff takes effect on April 5, 2025.
The additional country-specific tariffs commence on April 9, 2025.
Rationale: President Trump framed these measures as a "Declaration of Economic Independence," aiming to revitalize American industry and address what he perceives as unfair trade practices by other nations.
Market and International Response: The announcement led to immediate declines in global stock markets, interest rates, and the dollar. These moves reflect markets' initial belief that these moves will be more impactful to U.S. businesses, U.S. consumers, and the U.S. economy than those outside the U.S. However, global markets were viewing this negatively as well, at least in the near term. Critics expressed concerns about exacerbating inflation and straining international relations.
Our view – The tariffs announced yesterday were significantly more aggressive than markets had expected, triggering a swift decline in risk assets. Economists and financial markets now anticipate higher near-term inflation on many tariffed goods, coupled with slower economic growth. From a market and economic perspective, this is certainly not welcome news, as tariffs effectively amount to a tax increase on businesses and consumers. It is unclear at the moment if these will remain in effect and for how long or whether they’ll recede as negotiations take place. We are not going to sugarcoat this; the tariff announcement was not a positive development from a market perspective. However, much remains unclear, and much is likely to change in the coming days and weeks, and thus, we believe now is the time to remain disciplined from an investor perspective and stay focused on the long term.
Investing Perspectives in Volatile Times
In times like this, we believe it is helpful and important to provide perspective about previous market corrections. While the recent market environment is extremely stressful, it is important to remember that market corrections are normal, and short-term volatility should not derail a long-term investment plan. Below are a few charts that hopefully provide some perspective in times like this.
Even with today’s pullback, the S&P 500 is only down about 7% for the year.
As illustrated in the first chart below, the market typically experiences a 5%-10% pullback every 10 months on average. Corrections of 10%-20% occur approximately every 22 months, while declines exceeding 20% tend to happen about once every five years.
The second chart highlights that after a 10% pullback, the economy has avoided recession twice as often as it entered one since 1980.
It is also important to recognize that the best and worst days tend to cluster closely together, with the time between the best and worst days in markets oftentimes occurring within just a few days of one another, as reflected in the chart below.
The importance of the difficulty of timing markets cannot be overstated, as investors who missed the best days (which often times occur immediately following the worst days) have dramatically underperformed investors who simply remained invested, as demonstrated in the chart below. In fact, since 1990, missing just the 10 best trading days each year would have turned the S&P 500's positive return of +15.1% into annual losses of -18% on average.
Diversification is Your Friend – A well-diversified portfolio helps cushion against major losses in any one asset class or region. We build heavily diversified investment portfolios by asset class, geographically, and by market capitalization. Furthermore, we regularly rebalance portfolios to their long-term targets to make sure that proper diversification is maintained.
Opportunities Exist in Volatility – Market dips can create buying opportunities for long-term investors. If you have cash, this might be a good time to consider adding high-quality investments at a discount.
Conclusions & Portfolio Updates – We will continue to keep you updated as more information becomes available; until then, we are not making any knee-jerk decisions. We are always available if you wish to sit down and discuss your portfolio, the markets, or anything else that is on your mind.
As always, please let us know if you have any questions or concerns, or if we can provide assistance with any other financial planning matters including education, taxes, insurance, or estate needs.