March 12, 2025
Levies & Tariffs & Bears, Oh My!
Just when things appear to be going along swimmingly in the stock market, suddenly economic fear raises its ugly head. What happened? In a surprisingly short time, angst and trepidation have permeated the mood of stock market investors. This most recent downward move started in the NASDAQ Composite on February 21st only two days after reaching an all-time high, and as of March 10th we have seen this index drop over 10%. This is not the first time. Interestingly, a similar drop in the NASDAQ occurred in July/August of 2024, but that stinging has practically been forgotten.
What can change the economic outlook so quickly? Perhaps this is a major reason: The stock market has never liked sudden increases in taxes. Governments sometimes use different names when referring to taxes: duties, tolls, levies, or in the current case, tariffs, but regardless, it is still taxation. The uncertainty of the sudden implementation, then removal, then reinstatement, has created a mercurial concern for many company leaders and for those who own shares in these companies. When we get final direction from our government, and we believe this will occur, our stock markets will gain some footing.
Make no mistake about it, managers of large pools of money suffer the same anxiety as individual investors. They are not immune. In addition, there are computers pre-programmed with sell orders triggered to activate if certain shares fall to a pre-determined level. We believe this combination of fear and too-quick decisions can create opportunity. There are highly profitable and growing companies that have suddenly, and almost inexplicably lost value during the recent downturn. According to Bureau of Economic Analysis, in terms of GDP, the United States remains the strongest country in the world. Our GDP (as of 2024) was 29 trillion, compared to China, the second strongest economy which had just under 19 trillion, a country with 4 times the population of the US. 1.
A secular bull market is defined as a market that is in a long term and sustained upward trend. It is one which historically can last multiple decades. The previous secular bull market broke out to new highs in 1982 and culminated in March of 2000. The inception of our current secular bull market arose nearly 13 years later when the S&P broke again to a new all-time high in 2013 (and the Nasdaq followed in 2016). Remaining invested during secular bull markets, notwithstanding periodic dreadful economic prognostications and numerous market corrections, can lead to exceptional long-term returns.
All secular bull markets have corrections. Historical data on S&P 500 shows us the following frequency: several 5% declines occur within each year, 10% corrections every 1-2 years, and 20% or more every 5-10 years. What makes a secular bull market different is that the upward trend remains intact. Following each downturn stock prices resume their rise and give way to new all-time highs.
As you have probably surmised, we are optimistic with respect to the stock market. It is our judgement that we remain in a secular long-term bull market. The periodic bumps in the road will continue to occur as they always have, and this will eliminate some of the fearful investors as it always has, but we believe that those who stay the course will continue to be rewarded.
Past performance is not indicative of future results.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
1.https://www.statista.com/statistics/268173/countries-with-the-largest-gross-domestic-product-gdp/
