Tariff Panic

Different threat, same market reaction.

Domestic equity markets are puking down on tariff news/threats with ripples being seen in the treasury market, currencies, gold, Bitcoin and so on. It is baffling to me that tariffs are on the table in this day and age based on what we learned 90-ish years ago and the entire concept that they are anathema to free market capitalism. I have no idea how this will play out but the market is clearly concerned.

Of course there have been other events where the market has been concerned and this is no different. If this is the thing that leads to down a lot for the market, we know the path to that outcome goes through down a little for equity markets. There is no reason to deviate from whatever strategy you laid out for yourself before tariffs were on the table. If you take action based on the S&P 500 versus its 50 day, then take that action. If you take action based on the S&P 500 in relation to its 200 day moving average, then take that action. If you are buy and hold on no matter what, then you should hold on no matter what.

When some sort of decline happens I tend to talk about the details being different but that the market manifestations are the always the same. Stagflation of the 70's was different than the tech wreck which was different than the Financial Crisis which will be different than the the next one regardless of whether the next one is starting now or will start in the future.

The market manifestations are always the same. The market goes down a lot and scares the hell out of a lot people because "this one is different." Then the market stops going down, maybe for no reason at all and then starts to move higher. Eventually the market will go on to make a new high. The only variable to all of that is how long it takes. If you don't believe that, then sell now while the market is only down a little and never own stocks again.

The time to worry about and plan for these things is before they happen. That is not a comment about making predictions. If the market manifestations are the same then the details don't have to matter where your investment portfolio is concerned (your business may be a different matter). Additionally, where we know large declines come every so often then the timing may not matter either. At least that is how I have structured my process. That is not to dismiss proper asset allocation and the relevance of sequence of return risk as you approach the time of needing to draw from your portfolio.

When the S&P 500 goes below its 200 day moving average I take defensive action but I start doing so slowly in case it's a head fake or something that turns out not to be serious. There are plenty of valid strategies to trigger taking defensive action. What matters more than which one you might use is that you have a reasonable basis to expect it will do what you think it will and that you can stick to it. No single strategy can always be best but it doesn't have to be in order to be effective.

It is this sort of strategy and mindset that allows me to stay disciplined and not have emotions lead to panicked decisions.

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