Strubel Investment Management's commentary for the month of April, 2025.
Dear Investors,
The US market is down about 11% so far this year and down almost 15% from its intra-year high as of this writing.
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The reason? The one word that we’ve been hearing nonstop: tariffs.
In November after Trump won the election, the market and most people thought we would get similar economic policies as we did under Trump 1.0. Regarding tariffs, that meant lots of talk and threats but ultimately some negotiation and some type of trade deal. The main exception would be China. Most experts assumed tariffs would be implemented like the first term, using mainly national security-related exemptions and with similar timing. During Trump’s first term, it took about a year for the first tariffs to be implemented. Additionally, there was lots of time for the to examine the potential tariffs and an opportunity for business feedback.
This time has been different. Substantial tariffs have been enacted (even if only briefly) right out of the gate using different legal justifications. To illustrate the scale of differences, look at the chart below from mid-March.
We can see the jump in tariff rates under Trump’s first term compared to the potential jump under the proposed tariffs just this far into the second term. In fact, if we were to include the tariffs announced April 2, the rate would be double! This rate jump is primarily what worries the market. The total amount of tariffs announced so far equates to a tax increase worth thousands of dollars per household. Many estimates range from $2,000 to $5,000 with the higher estimate including retaliatory tariffs.
The other things the markets don’t like are the speed and scale of the tariffs combined with the fact that threatened tariffs have been enacted against almost every other country, not just mainly China. The tariffs on Mexico stayed in effect roughly 24 hours and Canada roughly 48 hours. This seems to have spooked the market. It went from viewing tariffs as a negotiating tool that would never actually happen to something that was real that could stay in effect for a period (even if a deal is ultimately reached).
Broad tariffs are hard to cheat. In our January 2025 newsletter, we explained how businesses can bypass tariffs by shipping semi-finished goods to non-tariff countries for finishing. But now, with the April 2 tariff announcement, tariffs ranging from 10% to almost 50% have been enacted on every country. When tariffs were in effect only on China, many companies got around them by shipping goods out of nearby countries like Vietnam or into a third party country like Mexico before ultimately transporting them to the United States. With widespread tariffs, these work-arounds are no longer practical.
Finally, another thing holding the market back is the enormous disparity between “hard” and “soft” economic data. Hard economic data refers to data that can be measured precisely and expressed in numbers; for example, the number of jobs created per month, the current inflation rate, or the country’s gross domestic product (value of all goods and services produced). Soft data refers to subjective measures of the economy; for example, how consumers are feeling, their expectations for the future, or corporate executives’ responses to survey questions about their future business plans.
Soft economic data lately has turned negative. The Consumer Confidence Index has worsened, showing the biggest monthly decline since COVID. Other soft data, such as regional Federal Reserve surveys, have shown reasons for caution. Business activity expectations are slowing, with plenty of comments about tariff uncertainty.
On the other hand, we are seeing generally good hard economic data with no real difference between the end of the last administration and the start of the new one. Jobs numbers are averaging much the same, inflation is roughly the same, and so on.
The chart immediately below shows the total new nonfarm jobs created each month. It’s a noisy data set with nonrelevant information. But when looking at the average, you can’t tell much difference.
The same is true with other hard measures. When looking at the average over time, we see no real changes in weekly jobless claims (again it’s a noisy data set so focus on an average change over time rather than week-to-week).
Which data should we believe? Some hard data has a time lag, since such reports can take weeks or months to be gathered and released. All current hard data precede the big April 2 tariff announcement. The main takeaway is that the current economy is sound and can weather some economic shocks, as long as those shocks are not too big or too fast. The size and speed of the proposed tariffs are approaching the limit of what the economy may be able to handle without slipping into a recession.
Given the elevated risk of recession, it’s important to remember that on average the market will be down about 25% from its highs and take about 18 months to recover. In the 2022 market downturn, we had a 20% drop and the market took about 24 months to recover, which was a bit longer than average.
What should we do? Well, for investors that have years until retirement, the short answer is nothing. It’s almost impossible to time the market and get things right twice. First, you must be right on the exact time to sell. Second, you must be right on the exact time to jump back in. In today’s situation, what if a trade deal is reached or tariffs are dropped or rates reduced? We are not likely to know or predict the timing of events that could cause a market rebound.
For investors that are retired or withdrawing money from their accounts regularly, we always keep a chunk of money in safe assets like bonds and CDs. We can draw distributions from this portion of the account while we wait for the stock portion of the account to bounce back.
