Market Volatility, Tariffs, and Long-Term Investing: What You Need to Know

The stock market has been on a rollercoaster ride in recent days, wiping out post-election gains and leaving investors wondering: Is this just the beginning?

At Avion Wealth, we recognize that market uncertainty can be unsettling. Our role is to guide you through these fluctuations with a disciplined, data-driven approach that prioritizes your long-term financial success.

Inflation, Interest Rates, and Economic Uncertainty

Recent economic data shows that annual inflation has dropped to 2.8%, which is a positive signal. Lower inflation gives the Federal Reserve more flexibility to reduce interest rates when economic conditions require it. However, it’s important to distinguish between the stock market and the broader economy—while markets react to news in real-time, economic shifts unfold over months and years.

At the same time, economic policies such as tariffs and trade restrictions are playing a growing role in shaping market conditions. Research spanning over a century has shown that tariffs often do more harm than good, especially when applied to specific industries.

The True Cost of Tariffs

While tariffs are often positioned as tools to protect domestic jobs, they come at a steep price. Studies indicate that in industries like steel, every job saved through tariffs costs the economy nearly 10 times the worker’s salary — around $680,000 per job — in increased costs to businesses and consumers.

The broader economic impact includes:

• Higher consumer prices, leading to an estimated tax burden of over $1,000 per household.
• Slower GDP growth, with expectations that U.S. economic growth could fall by 0.5% or more.
• Job losses, potentially reaching 500,000 positions across multiple sectors.

We’ve seen this dynamic before. In the early 1980s, American car manufacturers struggled under a system of protective tariffs. Quality declined, efficiency suffered, and U.S. automakers lost their competitive edge on the global stage. When these protections were lifted, the industry was forced to adapt, leading to a painful transition but ultimately a stronger, more competitive domestic auto sector.

Reintroducing tariffs now—especially in the midst of the transition to electric vehicles—could have devastating consequences, potentially crippling the U.S. auto industry.

The Market’s Reaction and What It Means for Investors

Markets hate uncertainty. When businesses cannot plan for the future due to unpredictable policy changes, investment slows down. The impact is already visible: companies are delaying long-term decisions, waiting for economic and policy clarity before making significant moves.

From an investment perspective, it’s crucial to remember that a stock’s value is based on the discounted net present value of its future earnings. If earnings expectations decline due to economic headwinds, so do valuations. Given the potential for a global economic slowdown, further market declines are possible.

However, timing the market is nearly impossible. The past year’s rally was largely driven by the Magnificent Seven (Apple, Microsoft, Amazon, Nvidia, Google, Tesla, and Meta), but recent corrections—particularly Tesla’s significant drop—highlight how quickly market momentum can shift.

Even in challenging periods, history shows that staying invested is critical:

• If you miss just the 10 best market days over 20 years, your total stock market returns could be cut by 50%.
• Market timing is nearly impossible, and missing out on these key days destroys long-term gains without reducing risk.

Our Strategy: Discipline, Rebalancing, and Long-Term Focus

At Avion Wealth, we’ve strategically diversified portfolios to cushion against volatility. Short-term fixed income and international exposure have helped our clients avoid the full brunt of recent market downturns.

Additionally, rebalancing during market corrections allows us to take advantage of changing valuations. While the short-term outlook remains uncertain, our focus remains steadfast:

✔ Disciplined investing: Avoid emotional reactions to market swings.
✔ Strategic rebalancing: Capitalize on market shifts while maintaining portfolio alignment.
✔ Coaching and support: Helping clients navigate uncertainty with confidence.

The Bottom Line: Stay the Course

We understand that market downturns can be stressful. But making reactionary investment decisions based on short-term news cycles often leads to costly mistakes.

The next few months may test investor patience, but staying the course, maintaining discipline, and trusting a sound investment strategy remains the best approach.

We’re here to help you navigate market uncertainty and make informed, confident financial decisions. If you have questions or concerns about your portfolio, we’re always available to discuss your strategy. Wishing you continued investment success.

Resources

Bloomberg: Once Again: Tariffs Are a Terrible Idea

Bloomberg: Stocks Rise After CPI Surprise as Trade Risks Loom: Markets Wrap

Franklin Templeton: The Cost of Timing the Market

Financial Times: US inflation fell more than expected to 2.8% in February

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