Minuk's Musings and Liberation Day

Wednesday was so called “Liberation Day”.

 

President Trump announced a sweeping new set of global tariffs and unveiled a chart that, well, let’s just say it raised more questions than it answered and didn’t inspire much confidence in the logic behind it.

 

 

When business leaders, investors, and economists all look at the same sheet of paper and go, “Huh?”, that’s when uncertainty kicks in. And markets hate uncertainty.

 

They didn’t take it well.

 

It is not necessarily because of “bad news” — we’ve seen different versions of bad news before — but because this rollout felt different. The logic seems dicey, almost like the plan was made on the back of a Mar-a-Lago napkin. The numbers don’t work and the scope? Wildly broad.

 

So broad that even Heard and McDonald Islands, located in the middle of the Antarctic Ocean and largely inhabited by penguins, weren’t safe.

 

American companies have spent the last 30, 40, even 50 years building global supply chains. Trying to untangle that overnight, based on some hasty tariff structure, is the kind of thing that makes CEOs scratch their heads.

 

Pressure is mounting immediately on Trump, not just from business leaders or international parties, not just from Democrats but also from the very voters who backed Trump and are now looking around and asking “Is my job next?”.

 

So, what is next?

 

In the coming months, will the tariffs be enforced exactly to the letter as they were outlined on Wednesday? We don’t know for sure but probably not. In fact, just this morning, Trump posted on Truth Social that he was on the phone with Vietnam — one of the most heavily tariffed countries on that infamous chart — and negotiations have already begun. How quickly the sharp edges begin to soften.

 

Source: Truth Social

 

So back to Liberation Day, what was it then? A negotiating tactic? A policy stance? Performance art? For markets, it doesn’t matter — stocks are reacting to what is real right now, and that is uncertainty.

 

Despite all this, there are parts of the market that are holding up better than others. Fixed income has held in quite nicely and so have some defensive sectors like consumer staples and utilities — people still need to brush their teeth and turn the lights on.

 

Meanwhile, other sectors have been weak, like energy, as recession fears creep in.

 

Here’s the thing though: this feeling isn’t new. We’ve been through trade wars, real wars, recessions, debt ceilings, flash crashes, banking crises, and more. Uncertainty is a feature of the market, not a bug. Without volatility or a storm from time to time, there is no reason for the outsized returns we get from investing over the long term.

 

It never feels good when you’re in the storm and you never know how long it’ll last or how painful it’ll be.

 

However, time and again, markets adapt. Investors adjust. Opportunities emerge.

 

Source: Dimensional Fund Advisors

 

This is why we have a process in place. We own quality. We diversify. We focus on our asset allocation and we invest through the volatility as we make our way to the other side.

 

Please feel free to reach out to me or email me back if you have any questions.

 

Time to turn off the news networks and enjoy your weekend.

 

Rich

Investment Advisor