March 17, 2025
The U.S. stock market has experienced a 10% decline over the last month. While it’s not unusual for the market to experience a drawdown of that magnitude in any given year—in fact, it happens more often than not—the swiftness of this decline coupled with the constantly shifting policy announcements out of Washington D.C. have made this one particularly unsettling. Although Friday was a strong bounce back day for equities and other risk assets, we understand some clients are concerned that this equity drawdown could have further to go.
S&P 500 Intra-Year Declines
Source: S&P Global, Morningstar, Fiduciary Trust Company. Chart displays price returns excluding dividends. Data as of December 31, 2024.
While it is clear that President Trump’s constantly evolving tariff policies have agitated U.S. allies and created uncertainty for businesses, making long-term planning difficult, we believe it is crucial to avoid reacting impulsively to headlines. When faced with uncertainty, markets often tend to price in worst-case scenarios quickly. Therefore, we remain cautious about making major adjustments to portfolios based on information that can change overnight. It is helpful to remember that while tariffs may pose a headwind to growth, part of the rationale for the tariffs is to help offset the cost of tax cuts which will help stimulate economic growth. Tax cuts combined with deregulation should provide a supportive backdrop for equities in the second half of the year.
Asset class returns this year have underscored both the importance of diversification and the risk of reacting impulsively to headlines. When President Trump first announced tariffs on Mexico and Canada in early February, the consensus said to sell Mexican and Canadian equities and favor U.S. equities because trade with the United States makes up a significantly larger share of GDP for Canada and Mexico than trade with either country does for the United States. However, Mexican and Canadian equities have outperformed their U.S. counterparts since the tariffs were first announced. On a year-to-date basis, the S&P 500 is down 3.9%, while the MSCI Canada Index is down just 0.4% and the MSCI Mexico Index is up 11.8%.
Broader global markets have also delivered strong returns this year. Developed international equities, as measured by the MSCI EAFE Index, are up 9.4%. China, the primary target of U.S. tariffs, has seen its equity market (as measured by the MSCI China Index) rise 20% this year. Meanwhile, all major fixed income sectors from Treasuries and municipal bonds to high-yield corporate bonds, have delivered positive returns this year.
Key Events We’re Watching
Looking ahead, there are several important events that could shape market sentiment:
On April 1st, the Secretary of Commerce and U.S. Trade Representative will report to the President on potential unfair trade practices by other countries. If President Trump is going to enact any reciprocal or global tariffs, those plans are expected to be finalized that week. While tariffs themselves may pose an economic headwind, simply having clarity on the final terms could provide relief to markets by reducing uncertainty. Businesses will be able to make informed decisions about pricing, supply chains, and investments. Furthermore, tariffs could lead to negotiations where trading partners agree to reduce non-tariff barriers, such as Europe’s regulatory restrictions affecting U.S. liquefied natural gas imports.
U.S. corporations’ first quarter earnings season will ramp up towards the middle of next month. We’ll be closely monitoring earnings calls to assess how executives view the potential impact of tariffs. Notably, many companies reporting fourth quarter earnings in late February downplayed tariff concerns, citing lessons learned from prior tariffs imposed during President Trump’s first term and the supply chain disruptions of the COVID-19 pandemic. Many businesses have taken proactive steps to ensure their supply chains are resilient and flexible.
If you have any concerns or would like to discuss your portfolio, please reach out to your Fiduciary Trust Investment Officer. Our focus remains on long-term fundamentals and navigating uncertainty with a disciplined investment approach.
