I have had a lot of people reach out to me in a panic because they’re seeing the wild swings in the stock market, and the impacts it is having on retirement plans. When you read the news, most of the legacy media outlets are very polarizing which makes it hard for every day people to figure out what is going on and what they should be doing with their money. I am going to try and attempt to offer some insights from my perspective, and I’ll do my best to make it as politically neutral as possible.
Let’s start with the biggest question, why is the economy fluctuating rapidly? The biggest reason was the start of the Federal Administration’s tariff policy. This has thrown a huge amount of uncertainty into the global economy. The reason businesses and investors are so on edge is because there is not a clear direction for businesses to follow, so everything is in a holding pattern.
The administration has changed its stance on tariffs on a daily basis, which makes it hard for businesses to implement a strategy. Tariffs increase the cost of imported goods, which can create incentive for local production and manufacturing. This creates increased demand for US goods and services which means companies need to scale up to meet the new demand. However if the Administration decides the next day to reduce or eliminate a tariff then the business is left with the new equipment and staff but less demand which means they lose profits.
Other countries may implement their own tariffs or may eliminate lines of business for the US entirely which increases production costs. China for example has stopped exporting rare earth materials to the US which we rely on heavily for virtually all electronics. This can lead to material shortages which can impact manufacturing and can lead to personnel furloughs or even layoffs while they have to limit or stop production. Other counties have also started looking at creating trade agreements around the US to try and find opportunities to buy and sell without the US market. This could further lessen demand for US goods.
In my perspective, the tariff strategy that has been implemented feels much too abrupt and blunt to be effective. Typically if you want to increase local production and demand you need to leverage tariffs alongside government incentive to expand supply locally. Think about the example of the Chips Act under the last Administration. They incentivized companies to build chip manufacturing plants to minimize reliance on foreign parties to supply our electronics. During the pandemic we also felt the pain points of our reliance on personal protective equipment from other countries, so the concept of self-reliance makes sense in certain scenarios. This often takes years to do since it is a large effort to build new plants, fit them with equipment, hire staff, etc.
So how might this impact you?
- Inflation: if the tariffs remain in place, this will likely lead to increased costs for almost everything. Much of our economy is so intertwined globally that much of what we buy is imported. Without the supply to meet demand currently, we will rely on imports. Since tariffs impose costs to other countries, they increase the cost of goods to make up the difference. Add to this there is no domestic incentive to scale, it could mean increased costs for the foreseeable future.
- Shortages: since the announcement of tariffs, imports have been dropping. Shipments from China are projected to be cut by ~44%. This could mean more empty shelves and less goods than we’re used to seeing. The impact may be delayed since it takes time to transport goods. Many goods are transported by shipping containers, which can take over a month.
- Retirement hits: as noted above the stock market is eagerly watching to see how things play out. During this uncertainty companies are not going to be taking risks, which means investors likely won’t see large returns which will cause stock prices to go down.
Having said all this, I personally am not panicking. While the global market is going haywire at the moment, I see signs that things may start leveling off. The Administration recently indicated that the escalating reciprocal tariffs with China are too high and they are working on finding an agreement. I think like most things in life things will normalize. So what am I doing currently?
- I am NOT hoarding. I don’t think there’s any harm in buying in bulk vs buying for a single week, but I would strongly encourage folks not to start stocking up for months. This only exacerbates supply issues like what we saw during COVID-19. I encourage you to check out my post on herd mentality if you’re feeling antsy.
- I am taking the opportunity to invest. My general rule of thumb is to invest more whenever the market is down so that I can benefit when the economy finally recovers. I am not going overboard and dumping all of my money in investments and risking my emergency fund. This does come with the risk that the market could drop further, but historically the market has rebounded following drops. The last thing I want to do is sell off investments after they have already dropped.
- I am limiting my news consumption. I am skeptical of news outlets these days which in my opinion are built to polarize people and generate ad revenue through click-bait articles. If I do look at the news, I make sure to look at both spectrums of the media to ensure I get a bipartisan view of things. So if you watch CNN I would also compare what Fox has to say, or vice versa.
I hope this helps give people some clarity. I won’t go as far to say there’s nothing to worry about, but I think longer term things will be OK. There may be some short term pains we have to navigate, but I don’t expect gloom and doom given what we have seen recently.
