From the February peak until March 13, the S&P 500 in the United States (US) declined just over 10%, one of the quickest declines on record (excluding COVID in 2020) and confirming a US market correction.
The reasons for this correction abound but, in my view, there were two main ones. The first was that in the US, large tech companies were over valued due to their huge stock rally over the past two years. Investors were quick to lock in their capital gains on these stocks, driving the stock price and the index down. The second was President Donald Trump and his tariff policy. There may be sound economic reasons backing the US tariff policies, but the implementation of the policies seems very disorganized. As the president of the US adds content to the tariffs and the national security issues he raises, markets should stabilize as the uncertainty subsides.
COVID created many concerns with globalization, as countries producing Pharmaceuticals started reducing exports, choosing to keep their supply for their population. This is why the US is so concerned with importing steel and aluminum from China. Should there be a conflict between these two powerful nations, importing steel from China leaves the US vulnerable to China cutting off the supply of steel, a key material used during wartime.
Placing tariffs on imported steel and aluminum allows US companies to compete against higher price imports, providing support to the US industries. The logic is to use the money collected from the imports by the US government, to help subsidize the US companies and workers, keeping the industry viable in the US.
President Trump has used “national security concerns” in an effort to reduce immigration, impede the flow of illegal drugs along his borders and increase US energy supply and therefore its energy security. The rapid pace that these changes are occurring has concerned many people. As the changing economics plays out, I expect the hysteria shown by some groups to slowly be reduced. Coming up with a workable agreement to the Ukraine/Russia war and further hostage ceasefire agreements in the Middle East would also help add some credibility to the Trump mandate.
In summary, I expect interest rates in the US to slowly drop in later 2025, which is good for US stock markets and the US economy. Overall, 2025 should see decent returns for stocks and bonds globally but there will be increased volatility because of President Trump and his US mandates.
If you have any questions or concerns, please feel free to contact me.
Best regards,
Bill Achtymichuk, CIM®, FCSI®, CFP®