As tariffs roil market, separate ‘signal from the noise’

Market volatility can affect investors in a variety of ways, depending on their financial situation and where they are in their financial life cycle.

That was the word from Alex Murguia, CEO at RISA and managing principal of McLean Asset Management Corp. who discussed investor fears over market volatility and the impact of tariffs at the recent webinar.

“If you’re in the accumulation phase, you can buy more shares when the market is on the down side,” he said. “But in the distribution phase, it’s inverse. You’re distributing assets from your portfolio when assets are going down.”

During periods of market volatility, advisors must tell clients to “separate the signal from the noise, Murguia said. “It’s important to maintain long-term perspective and keep a consistent investing strategy over time.”

The current period of market volatility is driven by concern about slow economic growth fueled by tariffs, high inflation, weak technology sector returns, monetary policy and government spending, he said.

Murguia said tariffs affect the market because there they can lead to increased costs, supply chain disruptions and strained relations with other nations.

'No real winners' in tariff-driven trade war

“At the end of the day, there are no real winners” in a tariff-driven trade war, he said.

“Many foreign economies rely heavily on U.S. consumers to purchase their goods,” he said.
“The country that does the greatest amount of importing has the upper hand.”

Tariffs are leading to several other questions that to which Murguia said there are currently no answers.

“What’s our ability to weather economic disruptions to the supply chain? Are Americans willing to pay higher prices? Do we even have domestic resources available to make these products in the U.S. anymore?”

One fear about tariffs is they could lead to a period of stagflation – an economic situation characterized by low economic growth, higher inflation and higher unemployment, he said.

Monetary policy impacts market volatility, Murguia said. The Federal Reserve has a dual mandate of achieving price stability and maximum employment. But uncertainty over the Fed’s next move is fueling volatility.

Government spending and budget cuts bring another layer of uncertainty to create market volatility. Murguia said the Trump administration’s intent to impose significant spending cuts is causing investors to assess the implications of those cuts.

“It’s not so much that markets want good news or bad news,” he said. “They want information so they can price securities accurately. The guessing is what leads to volatility. Will this go away? I don’t think so.”

Markets have rewarded discipline, Murguia said, and a disciplined investor looks beyond the concerns of today to the markets’ long-term growth potential.

“Once you know you can weather this, it’s easier to be in it for the long term.”

 

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