Back to the Future of Tariffs?
- rzophin
- Apr 8
- 3 min read
Approximately 95 years ago, on June 17, 1930, the Smoot-Hawley Tariff Act was signed into law by the, then, President Herbert Hoover. This increased tariffs on foreign imports to the U.S. by approximately 20%. Last week, the U.S. revisited, and even surpassed, that same tariff strategy with the implementation of tariffs on most major trading partners of the U.S., some of which are even higher than in the 1930s. Take a look at the chart of the week below.
Back to the Future: Proposed Tariffs Highest Since the 1930s Once Implemented
Trading partners have already responded to this with reciprocal tariffs against the United States. To no surprise, equity markets responded by pricing in a slower rate of earnings growth than previously expected coming into the beginning of the year. The "Mag 7" continue to be a significant source of profit taking. Given the amount of revenue the companies generate from overseas, they stand to have a negative impact on future earnings.
Alongside the decline in equity markets, the yields across the Treasury curve have all declined, despite the potential inflationary impact of tariffs. The 10-year yield breaking below 4% through the end of last week further supports that the market is pricing in both a slower rate of economic growth and a slower rate of earnings growth.
The uncertainty of tariff negotiations in the future makes it difficult for companies and investors alike to handicap future earnings projections. It is key for investors to remember at times like these that equity market declines are a common occurrence, even declines of the current magnitude.
Going back to 1980, the average intra-year drop of the S&P 500 had been 14.1%. And despite that average decline, the S&P 500 has been positive for approximately 75% of the years.
Another key focus will be on the underlying U.S. economy. This week brings the latest reading on inflation, with the report on U.S. CPI coming out. Additionally, we'll get the latest readings on consumer sentiment and inflation expectations, which will likely provide a pre-tariff baseline on both metrics as tariffs begin to be implemented in the coming weeks and months.
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What Should You Do
Given the current market uncertainty, it's important to stay the course. This is the time to stick to your financial plan rather than react impulsively. As mentioned above, the U.S. stock market has been resilient throughout its history. Historically, stocks routinely recover from short-term crisis events to move higher over longer time periods. By trying to predict the best time to buy and sell, you may miss the market’s biggest gains, as shown in the chart below.
If you have any questions at all, please don't hesitate to reach out. We're here to support you.
WHAT HAPPENED
Global Tariffs - The U.S. announced and implemented tariffs on the majority of its trading partners. Countries, beginning with China, implemented reciprocal tariffs on the United States.
Job Openings - Job openings in the U.S. for February came in at 7.568m vs. estimates of 7.658m, with quits rates and layoff rates remaining relatively unchanged.
U.S. Services - The ISM Services PMI Index came in at 50.8 vs. estimates of 52.9.
Source: Bloomberg
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
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