Navigating Market Volatility Amid New Tariff Announcements
On April 2nd, the White House announced a sweeping new round of tariffs on U.S. imports — a move that surprised many in its scale and potential economic impact. While these types of policy shifts have created severe near-term volatility and have generated understandable concern, we believe the best course of action for long-term investors remains unchanged: stay disciplined, stay diversified, and stay the course.
The Broad and Unexpected Scope of the Tariffs
The newly issued Executive Orders introduce a two-tiered tariff structure and represent a significantly broader and more aggressive approach than markets had anticipated:
A 10% universal tariff on all imports from all U.S. trading partners, effective April 5th
A set of higher “reciprocal” tariffs, ranging from 20% to 46%, targeting around 60 countries based on trade imbalances and non-tariff barriers, effective April 9th
Additional tariffs were also announced on all auto imports, while exemptions were granted for select goods — including pharmaceuticals, semiconductors, certain minerals, and USMCA-compliant products from Mexico and Canada.
These policies represent the most aggressive U.S. trade posture in over a century, and markets are now digesting the implications in real-time.
What does this mean for the markets and economy?
Markets initially responded negatively to the announcement, with stocks moving sharply lower and bond yields falling as investors absorbed the scale of the proposed changes. As we move a few days beyond the news, markets continue to digest the implications in terms of near-term corporate earnings risk and broader economic impact.
Tariffs function as a tax on imported goods, and their broad application may lead to higher consumer prices and slower growth in some sectors. Household budgets could feel pressure, and companies relying on foreign-made inputs may face higher costs. Many essential goods are exempt, which may help limit inflation risks. Importantly, the proposed tariff levels may represent a policy ceiling — creating the potential for constructive headlines in the coming weeks as negotiations evolve.
In the short term, trade policy uncertainty will likely weigh on corporate earnings and continue weighing on market sentiment, particularly among firms with global supply chains. Volatility may remain elevated as markets await international responses, including potential retaliation or legal challenges.
From a macroeconomic perspective, a U.S. recession is not our base case — but the probability has increased. The proposed changes would push the effective tariff rate materially higher but with room for negotiation and potential moderation over time. While this may slow personal consumption and business investment, household and corporate balance sheets remain healthy. Additionally, the Federal Reserve has room to cut rates if employment conditions weaken, helping to cushion the downside. Ultimately, a lot will depend on how much and for how long these tariffs remain in place.
What should investors do?
While headlines may feel alarming, our investment approach is designed for these environments. Political risk is part of the landscape, and history has shown that making dramatic portfolio changes during periods of uncertainty often results in worse long-term outcomes.
Portfolios we manage for clients remain broadly diversified across geographies, sectors, and asset classes. That diversification has served investors well this year — with most asset classes, including bonds, international stocks, infrastructure, real estate, and defensive equity sectors like utilities, staples, and healthcare, holding up relatively well or even delivering gains year-to-date as of this writing.
Defensive-oriented stock sectors, high-quality bonds, and other income-oriented asset classes may continue to benefit if growth slows and interest rates decline. At the same time, strong companies with pricing power and durable supply chains may be well-positioned to navigate shifting trade dynamics.
We are monitoring the situation closely — and equally important, we are monitoring portfolios for timely opportunities to rebalance and harvest tax losses, where appropriate. These disciplined, behind-the-scenes actions can add long-term value, especially in periods of elevated uncertainty.
Our focus remains on long-term goals, risk management, and helping you maintain peace of mind amid the noise.
Have questions? We’re here.
If you have questions about the impact of these changes on your financial plan, please don’t hesitate to reach out. Conversations with your advisor can help provide clarity, context, and confidence in uncertain times. In the meantime, we will continue to monitor market developments and portfolios and communicate our views as the situation evolves.
As always, thank you for your trust.
Disclosures:
This article contains general market commentary and is for informational purposes only. It does not constitute an offer to sell or a solicitation of an offer to buy any securities or investment products. The views and opinions expressed are those of Capstone Financial Advisors and are based on information believed to be reliable, but its accuracy and completeness are not guaranteed. Investment advisory services are offered through Capstone Financial Advisors, a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training. Past performance is not indicative of future results. All investments involve risk, including the loss of principal. Please review our Form ADV for more information about our services, fees, and potential conflicts of interest. If you have any questions or need further information, please contact us at capstonefinancialadvisors@capstone-advisors.com or (630) 241-0833.