There is always some level of uncertainty in the stock market, however like the price per share of the companies in the market, it ebbs and flows. The past two years have seen higher than average returns from the S&P 500 index with approximately 24% and 22% gains respectively, while it was down 18% in 2022. Currently, the S&P 500 is down around 8% from its February 19th all-time high. One of the primary drivers of the higher uncertainty currently is the new Trump administration’s tariff policies. Many U.S. companies are unsure of their future material cost, and it therefore makes it difficult for them to make decisions. Below we have listed a summary of our current tariff situation and outlook that is responsible for many of the market fluctuations we are experiencing.
— The Trump administration was open about their plan to utilize tariffs when they came into office in January. They have announced a three-prong approach to their initial tariff roll out:
- The first phase was to target Mexico and Canada with higher tariffs until the flow of fentanyl and the drug’s related deaths begin to show results. According to the CDC, approximately 87,000 Americans died from drug overdoses between October 2023 and September 2024. However, there is uncertainty on what level of decline the administration is looking for to lift these tariffs.
- The second tariff phase is to protect and reestablish the US steel and aluminum industry for national defense purposes. According to the White House, “A report from the first Trump Administration found that steel import levels and global excess were weakening our domestic economy and threatening to impair national security.” However, the implementation date of these tariffs and their tax level has fluctuated, creating uncertainty on supply cost for many manufacturers.
- Finally, the administration has been touting a broad reciprocal tariff rollout on April 2nd. There is uncertainty here because we do not know which countries and sectors will be targeted, and there are negotiations ongoing now with countries across the globe that will impact the rollout of these tariffs. Recently, Treasury Secretary Bessent mentioned “The dirty 15” in reference to targeting the 15 countries that have the biggest trade surpluses and high tariff barriers with the U.S. which has provided some clarity.
— Tariffs are the Trump administrations tool of choice to both bring about change in policies they do not agree with, and to protect and promote domestic manufacturing production. Political opinions aside, these tariffs are going to happen, and the equity markets need time to analyze their impact. Once the tariffs are established, U.S. companies can plan accordingly, and the uncertainty will be reduced.
Disclosure: The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy.
