In the Eye the of Storm: Staying Grounded in a Volatile Market
First off, it has been a tough week for the equity markets in light of the uncertainty surrounding tariffs and trade policy. This is not my first rodeo—and like many times before, this too shall pass.
I’ve spent several hours digging into the current situation, and I wanted to share some high-level thoughts:
The markets had priced in roughly 10% tariffs, but the actual numbers are coming in 2 to 2.5 times higher than expected for many of our trading partners, especially China. That surprise is driving a significant pullback as investors reassess the impact.
Uncertainty is the market’s least favorite word. Until there’s more clarity on trade policy, we can expect continued volatility. That said, if things become more predictable in the coming weeks, we could see some stabilization—if not a full reversal.
Several countries, such as China, have responded with retaliatory tariffs. But others—like Israel, India, and Vietnam—are taking a different approach. In fact, Vietnam is reportedly looking to drop tariffs to zero following a productive call with U.S. officials. Nike stock rose 6.5% on that news, as they manufacture many of their products in Vietnam. This may be an early sign that negotiations are already starting to unfold.
This moment reminds me a lot of the market pullback during the onset of COVID-19. Back then, the decline was caused by government-imposed shutdowns—an artificial, internal shock. But once those restrictions eased, the markets rebounded quickly and ended the year in positive territory. Today’s tariffs are also government-imposed, and if they’re reversed, we could see the markets bounce back sharply. These types of panics can start fast—and end fast.
I currently see three broad outcomes:
If tariffs stay elevated and the trade war escalates, recession risks rise.
If trade agreements are reached and tariffs settle around the expected 10% level or lower, growth may slow, but the economy still has enough tailwinds to support expansion—and markets could stabilize.
If negotiations lead to a meaningful rollback of tariffs, we could see a sharp rebound in the markets.
It’s also worth noting that markets were at stretched valuations before this, and the current pullback may simply be traders taking the opportunity to harvest gains and bring valuations back down to more realistic levels.
While I do believe recession risks have increased, I’m not as negative as some of the headlines. For example, J.P. Morgan recently raised their odds of a recession to 60%. While no one—including them or myself—has a crystal ball, I think that estimate may be overly pessimistic.
The evidence suggests this may be the “eye of the storm.” President Trump has reportedly been in talks with other world leaders, and several Republican lawmakers have indicated that they see the tariff pressure as part of a broader negotiation strategy. Trump is also known for being very aggressive early in talks—so assuming this is the final word on tariffs may be premature. Some reports say he has been speaking with Xi Jinping directly. A lot could unfold in the coming days and weeks.
As I mentioned earlier, some trading partners are already showing signs of capitulation, like Vietnam. The rise in Nike’s stock could be a hint of what’s to come. A sharp rebound is not outside the realm of possibility.
That said, my sense is that this will take time to play out, and I expect a bumpy road through Q2. As I mentioned earlier, this feels very similar to the COVID-19 crisis—where artificial, government-imposed constraints triggered a sharp but temporary market decline. Just like then, what comes quickly can also go quickly.
This isn’t like 2008 and 2009 Financial Crisis. Back then, we faced systemic dysfunction in the financial system, and there was little the government could do to stop the train once it started rolling. This time, we’re dealing with a policy-driven shock—one that could shift quickly if the tone of trade negotiations changes.
Also, like during COVID, the economy—while cooling—still has some meaningful tailwinds. The labor market remains healthy. Household debt levels are reasonable relative to income. The current strength of the U.S. economy may be enough to hold off a recession, especially if progress is made on the trade front. And let’s not forget: the Fed may step in and cut rates if needed. If we were entering this period with a weak economy, the damage could have been far worse. But that’s not the case.
With the range of possible outcomes so wide, I believe it would be rash to make dramatic portfolio changes in the midst of this uncertainty. It will likely take several weeks for the full impact of these developments to come into focus. Those who choose to bail on equities now may be reacting more to short-term noise than long-term fundamentals—and could ultimately regret making decisions in the eye of the storm.
As always, I’ll keep monitoring the situation closely and will continue to keep you updated.
Disclosures:
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