The Informed Investor

Trade, Tariffs, And The Market: Reacting To Market Swings

Brett Myer, Vice President of Investments and Research, ICC

May 17, 2019

In recent weeks, the increase of unpredictability in the U.S. stock market has become a constant concern for investors. The hardest hit stocks have been those of companies who do business that requires importing from or exporting to China. Investors are aware of the prevailing cause–turmoil surrounding trade talks and additional tariffs between the U.S. and China. But what we should be asking is, why is the stock market reacting this way over outcomes that have not yet been decided? And what should investors do?

Plan For The Long-Term

Markets move over the short-term when investors buy and sell based on anticipated outcomes before events occur. Volatility picks up in these short periods when investors anticipate tariffs and the market incorrectly, or the uncertainty of an expected outcome increases, as it has with the current trade talks. At this point, the market can snap back and forth around such major events as they unfold, like a driver that has made a turn too hard then overcorrects by swinging far back in the opposite direction. Over the short-term, the markets are rarely balanced and instead swing like a pendulum between extremes.

Fortunately for patient and rational investors who are working to build sustainable wealth, these short-term swings around headline news seldom result in more than noise for a diversified, long-term investment strategy. This is why the importance of an effectively diversified portfolio and reasonable time horizon cannot be overstated. Over short periods, the financial markets trade based on investor behavior and psychology, which is often irrational and unfounded. By contrast, investors focus more rationally on the fundamental value of investments over the long-term. So, when considering how to handle financial market volatility, it is critical to remain focused on the original objective rather than the latest controversy.

Consider a Financial Advisor

At ICC our team of fiduciaries helps investors decide how to react to tariffs and the market changes that can follow them. If you have $1,000,000 or more in investable assets, contact us today to learn more about ICC and our financial planning services.