Short Term Pain, Tariffs and Uncertainty in Stocks
2025 has begun with a bang and a pop (of equities). The new US government administration seems hellbent on torching the portfolios of investors in the name of "short term pain".
The uncertainty of the situation has cast a dark shadow over the stock market. Maybe the market was overly frothy after 2 years of excellent returns. The policies of the government seemingly exacerbated the situation to create a sense of dread over the business world. Tariffs mean change. Businesses will need to adapt, possibly raise prices, and sales might be affected. The stock market is pretty good at finding a catalyst to move in the direction it feels, and Trump became that catalyst.
This seems to be a case of overhyped expectations crashing to reality. When President Trump was elected in November, the initial reaction was to forecast blue skies and green pastures. The man who took office has not delivered on that lofty, euphoric and evidently misguided vision. Or maybe he will, but it will take some time.
The problem is that "short term pain" is very frightening to investors. How long is short term? How much pain will there be? We don't have the answers. We don't know how this will play out. There may be some industries and countries hit harder than others. Some companies will pay the price for Trump's trade war. Some people will literally pay more money for the things they want and need because of these policies and the clumsy manner in which they are being rolled out, delayed and retracted as bargaining chips, inciting our allies and opponents alike.
If we are truly long term investors, we should not change our strategy because of the tariff environment. However, I have taken some chips off the table because of what has happened. I have not changed my core strategy, but I did close out 1 underperforming stock at a loss. It was in the retail sector as an international brand that specifically has the name "American" in it. I suspect there could be animosity towards American branded products in other countries. There is the possibility that some countries around the world will see our president's actions as distasteful and choose not to buy American products. Who knows if this will come to fruition, but it already seems to be the case with brands like Tesla noting sales dropped considerably in Germany and Norway in recent months.
I also took a few bites out of some long term holds that are more susceptible to retrace their multi-bagger gains in this environment. However, I only sold a marginal amount of my positions to help pay my tax bill and living expenses. I'm still long with the bulk of my shares.
All the tariffs are done to balance the trade deficit of the USA. As a fiscally conservative American, I appreciate the motive behind these tariffs. I want us to close the trade deficit. However, the way we're going about this is disappointing.
I am not changing my investing strategy, but I am bracing for a rough year. I hope it won't be that painful, but I'm prepared to ride it out for those long term gains we've been promised. We hate the uncertainty, but that doesn't mean we quit investing.