The Potential Impact of Tariffs on the Economy and Your Portfolio

  • Economy and capital markets
  • 2/4/2025
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Key insights

  • Tariffs, taxes on imported goods, significantly shape global trade by affecting prices, consumer choices, and the economic landscape.
  • Recent tariffs announced by President Trump caused fluctuations in the stock market and currency values, and the situation is still very fluid.
  • To handle the volatility caused by tariffs, it’s important to diversify portfolios and stay informed about policy changes.

Stay ahead of market volatility by staying informed.

Talk to an Advisor

Tariffs, which are taxes imposed on imported goods, play a significant role in shaping global trade dynamics. Their impact on the market can be profound, influencing prices, consumer choices, and the overall economic landscape.

Given the rapidly changing nature of tariffs and surrounding market volatility, you may want to focus on risk management when managing your portfolio. 

The dynamic nature of tariffs

On February 1, President Donald Trump announced potential tariff action against Canada, Mexico, and China. The situation is evolving rapidly and is likely to continue in this manner.

In the prior Trump administration, tariff announcements on steel and aluminum (March 2018) and on Chinese imports (July 2018) triggered a short-term dip in equity markets, but they fully recovered within a few trading days.  

What can tariffs do to the stock market?

Tariffs can lead to higher prices for imported goods, which might cause a country’s currency to weaken as demand for foreign products decreases. Additionally, tariffs can create market uncertainty, as traders try to predict how these new taxes may impact supply and demand.

The initial market reaction to Trump’s announcement included: 

  • Most of the impact was felt in the currency markets, with the Canadian dollar sinking to its lowest level against the U.S. dollar since 2003. 
  • S&P 500 stock futures were down.
  • The yield on 10-year U.S. Treasury Notes fell.
  • However, the overall market reaction was somewhat muted, indicating that traders were cautiously optimistic about a deal being reached.

Preparing your portfolio amid volatility

Tariffs can cause market volatility as traders react to the uncertainty surrounding their economic impact. To help mitigate this volatility, investors should diversify their portfolios and stay informed about policy changes.

As we head into 2025, CLA has prepared our clients' portfolios to withstand higher volatility across both equities and fixed income:

  • In equities, we continue to hold high-quality stocks while adding to small caps due to their attractive valuations. 
  • In fixed income, we believe interest rates may remain higher for longer, so we added high-yield municipal bonds.
  • Selloffs of 10% in the equity markets are not unusual. They typically happen about every two years — and can be a great time to deploy new cash.
  • Our long-term views on asset class returns reinforce the idea that clients should stay invested. 
  • Economic growth is likely to slow from prior years, but we are not seeing data that would indicate a recession is imminent.

How CLA can help you model your portfolio

CLA helps clients achieve long-term financial goals by providing sound investment advice during periods of market volatility and by modeling portfolios based on various historical negative scenarios.

It’s important to stay informed and prepared for market changes due to tariffs and other administrative actions. CLA’s investment committee is closely monitoring client portfolios and is ready to act in cases of extreme instability, and our private client services team can help you deal with market uncertainty by coordinating cash flow needs and helping with estate planning and taxes. 

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