What a difference 90 days makes.
The S&P 500 surged 9.5 percent Wednesday, the most since March 2020, after President Trump halted the highest tariffs on countries that have not retaliated against U.S. trade policies, a group that notably does not include China. The Nasdaq 100 Index jumped nearly 12 percent, and the Dow Jones Industrial Average screamed close to 8 percent higher.
“I have authorized a 90-day pause, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately,” Trump posted on Truth Social.
The President’s reprieve came a week after his so-called “Liberation Day” announcement implementing the tariffs that caused the S&P 500 to selloff as much as 14 percent.
The question facing advisors now is: What – if anything - should they be doing over the next 3 months based on what – if anything - they’ve learned over the past week?
Ryan Detrick, chief market strategist at Carson Group, for one, wonders if the White House’s latest move was “like a punt for 90 days.”
“On the surface it sure appears that way, so we could be right back here in three months. Still, this does give Washington more time to potentially work out some trade deals before the pause ends,” Detrick said.
Added Detrick: “This is why financial advisors preach to clients not to panic on the bad days, as history shows the worst days and the best days tend to cluster together. If a client sells after the worst days, they will inevitably miss out on the pending best days.”
Meanwhile, Michael Arone, chief investment strategist for the US SPDR Business at State Street Global Advisors, also celebrated investors receiving their first bit of good news since Liberation Day and the market’s reaction to it. He also pointed out that Trump’s trade announcement further isolated China as “enemy #1” in his trade war, perhaps clarifying the playing field for investors.
And while market participants ran back into what he called the “comfortable arms of reliable high growth tech companies like the Mag-7” in the wake of yesterday's rally, Arone does warn investors to brace for more market volatility in the coming 90 days as Trump’s trade policy becomes "more coherent."
“The trade war may not be over but at least for today investors have won the battle,” Arone said.
Along similar lines, Daniel Lash, wealth manager at VLP Financial Advisors, expects bumpiness for investors in the coming 90 days as long as the administration continues to negotiate tariff deals on social media and in press conferences as opposed to doing it directly with trading partners.
“The market also has a lack of clarity around the administration’s short-term policies since they are changing daily and this too is creating more volatility,” Lash said.
According to Lash, advisory clients who are close or in retirement should have enough money allocated to fixed income to provide them with their portfolio income needs for 3 to 5 years so that they are not selling equities when they are down. For those still in the accumulation phase, however, market downturns present an opportunity to buy at relative lows.
“We don’t change client portfolios in anticipation of what may or may not happen in the next 3 months since that type of anticipation gets into market timing which the data shows is not an effective way to manage a portfolio,” Lash said.
Moving on, Thomas Raymond, investment management partner at Callan Family Office, believes the theatrics of the last few weeks may prompt some wealth managers to become overzealous risk managers, but calls the “price tag of doing so” appreciably higher. Notably, he points to defensive stock outperformance, which he calls most evident by Coca-Cola (Ticker: KO) now trading at a higher multiple than Nvidia (Ticker: NVDA).
Furthermore, Raymond said soaring volatility (VIX) means the cost or protective puts has risen materially for those advisors employing option strategies. In fact, the VIX Fear Gauge hit 45 on Apil 4th, which puts at levels last seen during the 2008-09 global credit crisis and the Covid-19 pandemic.
“Any just-in-time risk management tactics will come at a premium rate now. We would caution against such an approach,” Raymond said.
Finally, Andrew Mescon, CEO of Ballast Rock Private Wealth, said clients who are interested in mitigating risk over the next 90 days – or longer – may want to considering owning buffered ETFs to decrease risk while still maintaining a relatively disciplined long-term investment approach. These publicly traded, liquid securities provide investors with access to various market indices, but with varying degrees of downside protection, typically between 10 percent and 30 percent, in exchange for accepting a cap on the upside.
“In practice, we have been layering these securities into our client strategies over the past six months in anticipation of a potential correction of sorts, so it's actually an asset class that most of our clients are already familiar with,” Mescon said.
And as to whether the financial community has learned anything over the past week, Mescon said it is that "uncertainty remains the defining characteristic of this current market environment."
“In theory, markets reflect the sum of all publicly available information. In practice, when this is the case, markets naturally exhibit low levels of volatility. That we have seen some of the widest daily swings in price movement since April 2nd is essentially the market screaming that it does not have enough information to know which direction it should be going,” Mescon said.
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