Tariffs, Stocks Sink, Diversification is Good, and Soccer

April 6, 2025

CALMNESS: Much as many companies ascribe to "core values", Stonecrop Wealth Advisors claims five virtues that we try to live by. One of them is "calmness." Over the years, we have heard on many occasions, at the end of a client call or meeting, "I feel so much calmer after talking with you." Now, if I simply tell you to "remain calm," I don't want you to be reminded of Chip Diller's (played by Kevin Bacon) final scene in the movie Animal House. In fact, a client recently got angry with me because I did not appear to be freaking out, and she thought I should be. No matter what, I refuse to freak out. I recommend the following right now. One, focus on the long term. Shocks occur from time to time, and no one (despite what they say) knows how they will play out in the short term. Two, don't let the fear-mongering media rule your emotions. Fear sells, and they are really good at it. Three, focus on the facts, discuss your thoughts with others (preferably a good financial advisor) and calmly and logically make your decisions. This is one of the hardest things to do right now because all reporting seems to have a slant, a narrative that is being pushed, or an ideology that is being supported. But the facts are out there if you look and analyze. Finally, maintain your perspective. Money and wealth are critically important parts of your life as you seek to meet your life objectives. But there are other parts of your life that are significantly more important and fulfilling. Focus on those and keep money and wealth in their proper place in your priorities. We at Stonecrop Wealth Advisors are humans too (even though a consultant we hired a couple of years ago said I was "Spock"), but we are trying to live by these principles as we serve you.

SO TARIFFS HAPPENED: The Trump administration announced global tariffs on Wednesday after the markets closed. There has been speculation as to how the decisions were made for each country, but in principle, President Trump stated that other countries are unfairly competing with us through the use of tariffs, currency manipulation, and industrial policy (e.g., you can't import U.S. poultry into our country because of a chemical found on U.S. chickens). It is the combined effect of these policies that the administration announced it is trying to combat with a new tariff regime. President Trump illustrated this with a big poster board he held up during his announcement. The weighted average tariff rate across the board is 18.3%. These are deeper and more aggressive than anyone anticipated. About one third of total imports are exempt, which reduces the impact to about a 12.6% increase in the effective combined tariff rate. Canada and Mexico were exempted from this executive order as those countries are being dealt with separately and remain largely exempt for now. It will take time for the impact of these tariffs to show up in real U.S. economic data. In the near term, businesses are going to assess how it affects them and make decisions accordingly. During the transition, some prices will likely go up, causing some inflation, or at least keeping inflation an issue for longer than we wanted. But despite the fact that we now know more, meaning less uncertainty, much remains uncertain. The current uncertainty is how other countries will respond, and that is a big uncertainty. If we see a lot of retaliation, and not a lot of deals, it could cause global slowing of trade and a decline in economic growth. If we begin to see a lot of deals being made, it could usher in a positive turn and a market rally. It is too early to tell which way it will play out.

EARLY RESPONSES BY OTHER COUNTRIES: China retaliated with a 34% tariff on all U.S. goods on Friday. Doing it during market hours was likely intentional. Germany and France signaled a desire to strike back. Turkey, Singapore, Cambodia, Norway, South Korea, Bangladesh, Vietnam and others have already begun negotiating. Vietnam stated that it would remove all tariffs on the U.S. if the U.S. reciprocated. (To give a glimpse as to what could happen if enough deals are made, Nike stock rallied on Friday at the news of Vietnam's negotiations closing over 2% higher on the day.) Argentina, Israel and Hungary are negotiating for similar zero tariff reciprocity deals.

JEROME POWELL SPEAKS: Federal Reserve Chairman Jerome Powell spoke late last week. Here is a sampling of his remarks:

"The new Administration is in the process of implementing substantial policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation."

"We have stressed that it will be very difficult to assess the likely economic effects of higher tariffs until there is greater certainty about the details."

"While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected. The same is likely to be true of the economic effects, which will include higher inflation and slower growth."

STEEP DIVE: After the tariffs were announced by President Trump (see above), investors began selling and markets went down fast, the worst week for stocks since March of 2020. It is the prospects of higher inflation and slower growth that is concerning investors right now. It is likely that there will be more negative days next week as the stock futures look negative as I write this newsletter. Those who have a good, long-term strategy tend to do better in times like these. Those who resist the urge to panic and make wholesale moves generally perform better over time. Maybe a tweak here and there, or an opportunistic buy or two would be appropriate. But don't bet your portfolio on where you believe the markets will go in the next weeks, months, or years. You don't know. I don't know. Nor do the experts you may be watching, listening to, or reading.

LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices.

SURPRISINGLY STRONG JOBS REPORT, BUT NO ONE NOTICED: In March, the U.S. economy added 228,000 new jobs, about twice what economists were predicting. The Bureau of Labor Statistics also revised January and February numbers down by about 48,000 in total. The unemployment rate rose to 4.2% from 4.1%, and the Labor Force Participation Rate increased. Overall, this was good economic news, but it got lost in the tariff noise.

DIVERSIFICATION IS PAYING OFF: If you have a diversified portfolio, you probably lamented how much the S&P 500 grew in the last couple of years compared to your portfolio. Now the tide has turned. Diversification is paying off. Bonds were largely positive last week. International stocks are still mostly positive for the year. Large value stocks are doing better than large growth stocks. A simple comparison helps. While the headline of a 13% drop in the S&P blares, a simple stock and bond fund is down less. Below is a comparison of a S&P 500 fund (SPY) and two balanced funds (GAA and AOR).

TRADE DEFICIT: There has been a lot of talk in the past week (and earlier) about U.S. trade deficits. The chart below was created by the Wall Street Journal with data obtained from the U.S. Commerce Department. As you can see, until close to the turn of the century, U.S. trade was largely in balance. A trade deficit occurs when the difference between the value of the goods and services a country imports is greater than the value of the goods and services it exports. In 2024, the U.S. exported about $370 billion in goods to the European union. We imported about $605 billion. We imported about $438 billion from China and exported about $144 billion. We exported about $334 billion to Mexico and imported about $505 billion. Some of the imbalance is made up in services that the U.S. exports (see below). We export more than we import, but it only covers a fraction of the goods trade imbalance. How do we cover that imbalance? The U.S. can do that by borrowing money from foreign lenders or allowing foreign investment in U.S. assets. There is a wide dispersion of opinions on whether ongoing trade deficits are bad, and if so, how bad. Obviously, this administration has come out on the side that they are bad, and it needs to be brought into balance.

PUT ME IN COACH!: Many years ago, I coached my son (the man on the left below) in soccer, a sport I knew precious little about. History is repeating. On Saturday morning, I watched as my grandson Judah played his first ever soccer game, coached by his dad (and Stonecrop's Investment Director). Logan too knows little about soccer. But the level of play was better than I thought it would be for a bunch of first graders. At one point, Judah took the ball and dribbled all the way down field and got off a shot on goal. I couldn't believe my eyes. "How are they not stopping him?" He just kept going! Despite the rain and cold, I was glad to be there.

ONE MORE DONE: I ran the Delaware Running Festival Marathon on Sunday. I feel like I was really well trained for about 14 or so miles. The second half was rough. At one point I even considered giving up, but I really, really don't ever want to do that. So I got it done. Number six is complete!

Have a great week!

Our purpose is to honor God by helping our clients see the objective, find the path, and navigate past the obstacles to a more prosperous future.

Douglas R. MacGray, J.D., C.F.P. ®

President

Stonecrop Wealth Advisors, LLC

Direct | Cell | Fax

(610) 628 4545

dmacgray@stonecropadvisors.com 

"To me, character in a person is judged by the decisions that are made under pressure." Bryan Cranston

"Therefore we do not lose heart." II Corinthians 4:16 (NIV)

SOURCES:

TRADE DEFICIT: https://www.wsj.com/economy/trade/what-to-know-about-the-u-s-trade-imbalance-in-charts-79b25c0b?mod=WSJ_home_supertoppermiddle_pos_4 AND https://www.investopedia.com/articles/investing/051515/pros-cons-trade-deficit.asp

SO TARIFFS HAPPENED: https://www.gspublishing.com/content/research/en/reports/2025/04/03/42de1e1c-7c30-4379-94ba-8796da068741.html

EARLY RESPONSES BY OTHER COUNTRIES: https://www.investors.com/news/trump-tariffs-what-they-mean-us-economy-stock-market/ AND https://www.reuters.com/world/middle-east/turkey-wants-negotiate-lift-10-additional-us-tariffs-2025-04-04/ AND https://www.msn.com/en-us/money/markets/singapore-disappointed-with-10-tariffs-will-seek-negotiation-with-the-us-trade-minister/ar-AA1CgTxH AND https://justthenews.com/world/cambodian-prime-minister-offers-reduce-tariffs-negotiate-trump AND https://wsau.com/2025/04/03/norway-seeks-to-negotiate-with-the-us-over-tariffs-prime-minister-says/ AND https://www.devdiscourse.com/article/politics/3333586-south-korea-navigates-us-tariff-turbulence-with-negotiation-strategy AND https://www.tbsnews.net/bangladesh/tariff-meeting-govt-says-us-great-friend-optimistic-exports-it-other-western-countries AND https://www.nysun.com/article/argentina-and-israel-move-to-appease-trump-as-others-contemplate-tariff-war-escalation AND https://www.msn.com/en-us/money/economy/nike-stock-jumps-as-trump-says-vietnam-is-negotiating-on-tariffs/ar-AA1Cjds0

JEROME POWELL SPEAKS: https://www.federalreserve.gov/newsevents/speech/powell20250404a.htm

DIVERSIFICATION IS PAYING OFF: YCharts.com

SURPRISINGLY STRONG JOBS REPORT, BUT NO ONE NOTICED: https://www.bls.gov/news.release/empsit.nr0.htm

(c) 2025 Anno Domini, Stonecrop Wealth Advisors, LLC, All Rights Reserved

Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.

SDG

*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.

*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.

*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.