Trump’s Tariffs and Market Volatility: Key Impacts on Global Financial Markets
The recent ‘Liberation Day’ tariff announcements by US President Donald Trump marked a significant event for global financial markets. While the intent behind the tariffs appears to be about boosting American industries and reducing US trade deficits, there could be significant negative global economic impacts in the real world, depending on how it plays out. Trump’s tariffs have caused the highest levels of market volatility seen since the COVID pandemic.
The tariffs have been on the extreme end of anyone’s estimates, and we don’t know if they are here to stay or if they are just a negotiating tactic, given there are 50 countries reportedly currently in negotiation talks with the US administration. Given we don’t know exactly how the tariff war will play out, this article focuses on our top three key messages for investors during unpredictable times like these.
1. Zoom Out: Keep the Long-Term Perspective in Mind
At times like this it’s key to zoom out and take in the longer-term big picture. When the world feels like it’s ending, remember, it felt this way during other major events such as COVID, the GFC, the tech bubble crash, 9/11, Brexit.
The chart below shows various asset classes over the past 20 years, highlighting these major events. As you can see, markets always recover, and the world moves on. This time is no different with Trump’s tariffs.
Source: Vanguard
2. Don’t Sell: Why Staying the Course is Crucial in Market Volatility
Human nature often drives us to act emotionally, especially in times of market turmoil. It’s common to want to sell assets and move into the safety of cash, but this is usually the worst decision for several key reasons:
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Locking in losses: Selling assets guarantees that you lock in a lower price, possibly even crystallizing a loss.
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Missing out on the rebound: Once you sell, the challenge is deciding when to re-invest. Often, market bounces back quickly (as seen with COVID), and if you remain in cash, you may miss the opportunity to capitalise on the recovery.
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Time in the market matters more than timing the market: The long-term benefits come from staying invested, not from attempting to time market fluctuations. Even seasoned professionals struggle to successfully time markets, and trying to do so can be detrimental to long-term wealth building.
3. Turn off the TV: The Dangers of Media-Induced Panic During Trump’s Tariffs and Market Volatility
Media outlets thrive on sensational headlines that stir up fear and emotions regarding the global financial markets. During times of market downturns, they often use fear-driven headlines like “Panic Monday” or “World Markets Crater, Worst Fears Confirmed,” which can escalate anxiety.
However, a closer look at the numbers reveals a different story. For example, the ASX200 is only down about 3.6% over the past year (as of April 8th) despite a recent 15% drop. Similarly, the S&P500 has dropped about 2.7% over the same period, even after a near 20% fall in recent weeks. These figures are important to keep in mind, especially considering that markets have experienced several years of double-digit returns, such as the S&P500’s 23% growth in 2024.
If you rely solely on the media, it can give you a skewed view of the situation, which may lead to rash decisions.
4. Understand Your ‘Admission Ticket’ to Higher Returns
The key reason share markets are among the best long-term wealth-building tools is that they come with risk. Risk (or volatility) is essentially your “admission ticket” to achieving higher returns. Without the inherent risk, there would be no corresponding reward.
Instead of viewing market corrections as something that should be avoided, consider them a normal, healthy part of market cycles. These corrections are expected from time to time and are part of the reason why long-term investors experience outstanding returns.
Conclusion: Navigating Trump’s Tariffs and Market Volatility for Long-Term Success
The volatility caused by Trump’s tariffs, and other market fluctuations, highlights the challenges of making educated short-term predictions. While losses may continue in the near term, the focus should remain on maintaining a long-term investment strategy. By adhering to the key messages outlined above, you can avoid common mistakes, stay the course, and ultimately reap the benefits of risk assets over time.
Contact Us
If you’re an Australian expat that has questions about how Trump’s tariffs and market volatility may impact your investments, or if you’re looking for personalised advice on navigating uncertain market conditions, we’re here to help. At Atlas Wealth, our team of experienced financial advisors can provide tailored strategies to help you stay on track with your long-term investment goals. Contact us today to schedule a consultation and take the next step toward securing your financial future.
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