Welcome to Portus Wealth Advisors March 12th, 2025 Economic and Investment Update.
Trade, Tariffs, and Market Uncertainty
The S&P 500 kicked off the year with strong momentum, buoyed by the investment flows of 2024.
Despite concerns over stretched valuations entering the year—where price-to-earnings ratios were at the higher end of historical ranges—corporate earnings growth exceeded expectations, outpacing historical averages. Strong consumer balance sheets further reinforced economic confidence, with GDP growth projections landing at 2.5% for the year.
As expected, the first 45 days of the new administration ushered in a wave of policy changes. However, few anticipated the sheer volume of executive actions—26 executive orders on President Trump’s first day alone covering immigration, government efficiency, and energy policy.
Fast forward to today and the administration has signed over 100 executive orders – with trade policy now dominating the headlines.
Market Sentiment and the Trade Uncertainty Premium
Financial markets tend to overreact—both to the upside and the downside. Analysts thrive on predictions, and even minor deviations from consensus forecasts introduce uncertainty, fueling volatility.
This was magnified under President Trump’s first term and is showing up again early in his second term. The President lives in extremes as part of his negotiations/strategy and then the market reacts – and overreacts – to already extreme positions.
Unless and until policies come into focus and tax/trade policies begin to settle into something the market can digest, we expect a continuation of the wide swings we have seen in the last 4 weeks. In an ideal world, clarity from a tax/spend perspective emerges before the end of April and then the market can better handle the news coming out of Washington.
Currently, uncertainty surrounding U.S. trade policy is at its highest level since 1960, a key driver of recent market swings.
Tariffs and Trade Policy: Economic Implications
Trade policies and tariffs have broad implications for industries, businesses, and consumers. The latest measures aim to achieve strategic economic objectives, including:
Supporting domestic industries through protective tariffs
Diversifying supply chains to reduce reliance on specific trade partners
Addressing trade imbalances by shifting the import-export dynamic
While these policies present opportunities for certain sectors, they also introduce challenges that could shape U.S. economic growth in the coming years.
Trade Balance and Supply Chain Shifts
Tariffs are often designed to correct trade imbalances, reducing dependence on imports while fostering domestic production and export growth. Some U.S. manufacturers stand to benefit from enhanced competitive positioning in global markets.
However, international trade partners will inevitably adjust their own policies, leading to potential disruptions in global trade flows.
In response to shifting trade dynamics, corporations have accelerated supply chain diversification. This has led to increased sourcing from India and Southeast Asia, as companies seek to mitigate tariff risks. While these adjustments unlock new economic opportunities, they also introduce complexities in logistics, regulatory compliance, and production costs.
Consumer and Business Impact
For consumers, tariffs have a direct effect on pricing, particularly for imported goods. Some industries may absorb increased costs, while others may pass them on to consumers, depending on demand elasticity (how much the quantity demanded of a product changes in response to a change in its price) and competitive pressures. Over time, shifts in domestic production capacity and alternative sourcing strategies could help stabilize pricing pressures.
From a corporate perspective, trade policy plays a critical role in long-term investment decisions. Companies with global exposure must factor trade uncertainty into capital expenditures, expansion plans, and strategic partnerships. The clarity and predictability of trade regulations are key in shaping business confidence and broader economic stability.
Market Outlook: Volatility and Portfolio Positioning
The economic impact of tariffs and trade policies will ultimately depend on business adaptation, global trade negotiations, and consumer response. While some sectors may see growth opportunities from increased domestic demand, others will likely face margin pressures and operational shifts.
One certainty is that market volatility will persist until investors gain clarity on the scope and duration of these tariffs. The uncertainty surrounding U.S. “exceptionalism” has already led to a notable shift in global equity performance—
European and Chinese markets have outperformed U.S. indices in recent months.
Looking ahead, diversification remains key. We anticipate that global markets will continue to offer relative strength while U.S. equities face short-term pressures. However, once the uncertainty clears, we expect the U.S. to reassert its leadership in the financial markets.
Disclosure Updates:
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