This week, the U.S. government hit a nerve with the market by imposing broad tariffs on imported goods. This move, led by the Trump administration, has escalated tensions between the U.S, China, and the European Union. And let’s be honest, it shook up global markets.
When the news broke, there was a sharp sell-off across the board. In the U.S, the S&P 500 dropped over 4%, and the Nasdaq fell almost 6%, the largest drop since Covid. Over in Australia, the ASX 200 wasn’t spared – it took a hit, erasing over $58 billion in value before recovering slightly.
As the US election approached and markets showed a strong likelihood of another Trump administration, we have continually advised caution because of a concerning policy agenda and the risk that the proposed tariffs were indeed planned to be implemented rather than used as a negotiating tool. Donald Trump repeatedly talked of an isolationist, protectionist America on the campaign trail. While the consensus amongst economists is that tariffs don’t achieve their intended goal, this rhetoric plays very well to Donald Trump’s conservative base. Our view was that the potential tariffs were not priced into the market and that valuations remained high.
What the Tariffs Mean for the Economy
So, what’s really at stake here? These tariffs are expected to raise the cost of imported goods. Think higher prices for electronics, clothing, and even food. The result? Inflation could rise, squeezing consumers’ wallets and reducing their purchasing power.
For companies, especially those relying on global supply chains like Nike, it’s a bit of a double-edged sword. Higher input costs could eat into profit margins, and companies may face tough decisions on how to absorb those costs. Nike, for example, could see the price of a $100 shoe climb to $146. They might try to absorb the costs, but that could hurt their stock price or even lead to job cuts.
The Risk of Escalation
This is just the beginning. The U.S. has made it clear they’re not backing down, and that means other countries, like China and the EU, are likely to retaliate. If they do, it could send global trade into even more turmoil. For instance, the EU could hit U.S. tech giants like Google or Amazon with their own tariffs, which would impact the biggest players in the market.
Why Diversification is Key Right Now
In times of uncertainty, diversification is more important than ever. When the markets swing wildly, having a mix of asset classes – like equities, fixed income, private credit and hybrid securities – can help cushion the blow. A diversified portfolio isn’t just about spreading risk – it’s about ensuring that not all of your eggs are in the same basket. Additionally, while interest rates remain above 4% in Australia, we have alternative asset classes offering attractive risk-adjusted returns, so diversifying doesn’t mean limiting one’s long-term upside.
For example, the ASX Income portfolio, which focuses on hybrid securities and debt, has historically provided stability during market downturns. While equities might take a short-term hit, fixed–income or hybrid securities can offer steady returns and balance out the volatility.
Asset Allocation and How Rivkin Can Help
At Rivkin, we understand the importance of smart asset allocation, especially during turbulent times like this. Our team has implemented a diversified approach across various asset classes, aiming to balance risk while positioning for growth. Whether it’s a focus on hybrid securities, global equities, or fixed income, we carefully select the right mix to meet your financial goals.
If you’re interested in learning more about our asset allocation model and how it can benefit your portfolio, we’d be happy to arrange a call with one of our team members. They can walk you through the model and discuss how we tailor strategies to fit different risk appetites and market conditions.
Interested in learning more?
Reach out to our team:
📞 1300 748 546
📧 [email protected]
