Should You Buy Stocks Amid Trump’s Tariff Threats?

We’re receiving lots of queries from clients about the suitability of buying equities in light of Donald Trump’s tariff threats.  Of course, any decision to add money to the market requires careful consideration of several factors – foremost your investment time-horizon.

You see, tariffs can have a significant impact on both domestic and global markets – meaning the effects of the tariffs can linger for years potentially.  For younger investors, adding shares in market declines caused by trade wars and tariffs can benefit an investor by lowering an investors cost basis in their portfolio.  And over time, this can dramatically help an investor reach their long-term goals much sooner.

On the other hand, older investors with shorter time horizons should be careful about adding additional money to already over-valued equities.  While the market will likely rebound over time, it could take more than a year or two for that to occur – and if your time horizon is too near, you could possibly forestall your retirement.

Of course, tariff threats create uncertainty in the markets, as they often lead to higher costs for businesses, disruptions in supply chains, and retaliatory measures from other countries. These risks can cause volatility, especially in industries reliant on international trade, such as technology, manufacturing, and agriculture. For example, if tariffs are imposed on Chinese goods, U.S. companies that rely on Chinese imports might face higher production costs, which could negatively affect profit margins.  And remember rule #1 in fundamental analysis – stock prices ALWAYS follow earnings.  Lower earnings equals lower equity prices.

However, there are also potential opportunities in the presence of trade wars and tariffs. In some cases, stocks of companies in industries like national defense or domestic manufacturing benefit from tariff policies if they result in increased demand for locally produced goods or government contracts. Investors may also view certain sectors as more insulated from tariff impacts, such as utilities or consumer staples, which tend to be less sensitive to international trade dynamics.  Commodities like gold and other precious metals also usually do well in the presence of higher tariffs, too.

Ultimately, whether investors should buy stocks now depends on their risk tolerance, investment horizon, and sector preferences. If they are concerned about the effects of tariff threats, they may want to consider a diversified portfolio to hedge against potential market swings. On the other hand, if they believe the situation will stabilize and tariffs won't be fully enacted, this might present buying opportunities in undervalued stocks or specific sectors that stand to benefit.

If you would like more information about your own situation, contact Dr. Robinson at rich.robinson.phd@gmail.com