Advisors grapple with fallout from Trump's 'Liberation Day'

Let the “Liberation Day” fireworks begin.

President Donald Trump imposed the steepest American tariffs in a century Wednesday, a date he proclaimed “Liberation Day” due to the highly anticipated unveiling of his campaign to reshape the global economy through trade levies. In a White House ceremony, Trump announced the placement of at least a 10 percent tariff on all exporters to the US, with even higher tariffs on over 60 nations to counter large trade imbalances with the US.

Trump’s order targets some of America’s biggest trading partners, including China which will subsequently face tariffs of more than 50 percent on an array of its exports, as well as Japan, Vietnam and the European Union.

The S&P 500 fell over 4 percent in Thursday's morning trading in response to what Deutsche Bank called the “biggest trade policy shift from the US in a century.”

For their part, financial advisors were forced to deal with the fallout from the market’s major selloff, answering client questions as to what portfolio moves their wealth managers may or may not make as a result of the President's actions.

Philip Palumbo, CEO and chief investment officer of Palumbo Wealth Management, for one, said the experience thus far has been anything but liberating, due to the rise in uncertainty which he calls the greatest “since the early days of COVID.”

In his view, the tariff terms announced are so extreme that they can only be seen as a starting point for negotiations. As a result, he believes the faster those negotiations happen, the better the chances the economy can avoid a recession.

“If this escalates instead, a recession becomes more likely this year—and with it, more downside in the markets,” Palumbo said.

Despite the market’s volatility in response to the tariff announcement, Palumbo maintains America remains on the verge of an “Industrial Renaissance.”

“The U.S. is moving toward reshoring and onshoring more manufacturing, partly for security and partly to fix the supply chain issues exposed by COVID. But this shift doesn’t mean we’ll see massive job growth. Robotics and automation will likely lead the way,” Palumbo said.

As to whether he plans to make any meaningful changes in client portfolios, Palumbo said he entered this year with a healthy amount of cash and ultra-short-term fixed income, giving him flexibility to rebalance and take advantage of opportunities caused by volatility like the one the market is currently experiencing. At the same time, however, he said he is mindful not to catch a falling knife.

“Volatility, in our view, is not something to fear. It’s something to use. It creates opportunities, and that’s how long-term wealth is built,” Palumbo said.

Elsewhere, Andrew Mescon, CEO of Ballast Rock Private Wealth, said it is unclear that uncertainty around tariffs has actually been removed despite the President’s announcement. He points out that this particular administration has demonstrated willingness to “change its mind and reverse course on policy decisions time and again.”

“Although this time they seem to be digging in a bit more than usual, it's not beyond the realm of possible outcomes to see the administration declaring some sort of ‘victory’ and reversing course in a month or so. Were that to happen, it's possible we'd see markets snap back rather quickly,” Mescon said.

At this time, Mescon is not broadly recommending changes to client portfolios. That said, he has been fielding calls from some of his younger and more aggressive investors about "buying the dip."

“While we are generally opposed to more active market timing strategies, we recognize that investors with longer time horizons and lower liquidity needs could potentially see market selloffs as opportunities increase to put cash to work. One way to accomplish this would be to increase contributions to qualified retirement accounts, as these assets are unlikely to be withdrawn anytime soon,” Mescon said. 

Moving on, Tom Graff, chief investment officer at Facet, said there is “no doubt” that the tariff plan announced last night was a serious negative for the economy and the markets. However, he added that it is hard to know when this impact is priced in, especially since tariffs could be rolled back or other positive impacts could come to fore.

“I loathe to try to guess where the bottom will be one way or the other,” Graff said.

In terms of portfolio allocation, Graff said he entered this period well aware that tariffs were a big risk and so he is not making any drastic changes.

“We have built in some defense in the form of underweighting tech and overweighting companies with more financial flexibility,” Graff said.

Finally, Steve Kolano, chief investment officer at Integrated Partners, said the big focus going forward will be on any impact to consumer spending and to corporate earnings. In his opinion, those two things are the biggest factors that the market is trying to get a sense of with this market reaction this morning.

“Given the unprecedented nature of what’s been implemented, there really is no playbook for investors to revert to and so profit-taking on the back of a market that has largely been up over the last two years is an initial response until more clarity can be obtained,” Kolano said.