None of these are new ideas to veteran investors, of course.
The first 100 days of President Trump’s second term are officially in the books. And, they’ve been interesting ones to say the least. Bearish, too. The S&P 500 index’s 7.3% setback suffered over the first 100 calendar days of Donald Trump’s current presidency are the worst start to a presidency since 1974, and the third-worst first 100 days going back as far as the data allows. Ouch.
There is an underappreciated upside quietly buried in all the noisy madness, though. That is, it taught — or perhaps retaught — investors some important lessons. Here are the top four lessons you may have learned just since February without even realizing you learned them.
1. The global economy is really, really global
Beginning with the most obvious matter, most every nation in the world is importing as well as exporting a lot of goods.
The United States is one of the planet’s top per-capita importers, of course, with the Observatory of Economic Complexity (or OEC) estimating that every U.S. resident consumes nearly $9,000 worth of foreign-made goods every year. Data from the U.S. Department of Commerce similarly indicates that more than one-third of all the goods we buy within this country are manufactured outside of its borders.
Just make sure you’re seeing the bigger picture. While China remains the world’s top manufacturer and exporter, for instance, the Observatory of Economic Complexity points out that China is also the planet’s second-biggest importer, buying nearly $2.2 trillion worth of foreign-made goods in 2023 versus $3.4 trillion in exports. Many of these goods are pieces, parts, and components needed to manufacture its exports, but they’re still imports that help spin the global economic wheel. They’re not just used to make exports for U.S. buyers, either. Only about 15% of Chinese-made goods make their way to the United States, in fact. The other 85% are sent elsewhere.
Similar dependency dynamics apply to most countries all over the world, of course. And ditto for most individual companies here and abroad. It would be difficult for any nation or corporation to thrive on its own. Investors simply need to recognize this reality and position their portfolios appropriately, especially when cross-border business becomes too costly or complicated to do.
2. When the brakes are applied, they’re usually slammed on
If you feel like the market’s average bad day gives up more ground than is gained on its typical good day, you’re not imagining things. That is the case. Although they make forward progress more often than not, when stocks are falling, they’re usually falling much faster than they climb. That’s true of the market’s daily action, but also true in weekly and monthly time frames.
There’s nothing you can do about it, to be clear, nor is there anything you’d necessarily want to do about it. Sometimes you just have to take your lumps, knowing there’s a light at the end of the tunnel.
It’s something worth keeping in mind all the same, though, if only to prevent yourself from making bad, panic-prompted decisions. The faster the sell-off, the sooner it’s likely to find at least a temporary bottom, if not a major one.
3. You diversify for unknown risks more than known ones
Still, to the extent you can sidestep the brunt of any sell-off without crimping your overall long-term performance, you should. And the best means of doing so is (still) maintaining a well-diversified portfolio of not just several different stocks, but different kinds of stocks — or for that matter, several different kinds of investments altogether.
Image source: Getty Images.
This has likely been a particular pain point for many investors of late. Many of them made well-reasoned, educated guesses based on what they could see for the foreseeable future. Higher interest rates are raising the cost of capital for growth companies, for instance, while an undervalued U.S. dollar spurs foreign imports of U.S.-made goods.
However, preparing for known and obvious risks doesn’t actually help defend your portfolio all that much; most of any potential trouble that’s already apparent is also already reflected in asset prices. Rather, you diversify to defend your portfolio from unknown and unforeseeable risks that aren’t yet reflected by market pricing. And let’s face it. While most investors fully believed Donald Trump would make good on his promise to fight export tariffs and raise tariffs on goods imported into the United States, few thought he would let the matter reach the level of tension that it has. It’s possible that longer-term damage has already been done.
The thing is, a handful of high-quality stocks have not only performed well in this environment, but may have performed well specifically because of the tariff war now under way. Many of these names were anything but market favorites just a few weeks ago, before tariff-mania took hold. It just means you’ll want to stay well diversified even when it doesn’t feel like there’s any good reason to do so.
4. In the long run, everything really is going to be ok
Finally (and perhaps most importantly), although the initial response to the ever-escalating tariff standoff was a steep stock market sell-off, now that the dust is settling things don’t seem quite so terrifying. Nations that didn’t initially come to new trade terms with the United States are at least considering talks with Trump, including China, which says it’s “evaluating” proposals that would lay the groundwork for higher-level negotiations. Given how much the two economic superpowers actually need one another, there’s good reason to expect an amicable trade agreement. Most other nations will likely follow this lead, too, rekindling robust international trade.
Except, the bigger surprise here actually would have been continued economic weakness even if the U.S./China stalemate lingered.
See, capitalism finds a way. Either due to necessity, habit, or simple greed, the world finds ways of shrugging off challenges and setbacks that seem catastrophic at the time to continue doing business. Greece’s 2009 debt crisis, 2011’s tsunami that destroyed much of Fukushima, Japan, the subprime mortgage meltdown of 2008, the COVID-19 pandemic, and Brexit are just some of the developments that were supposed to have far-reaching economic consequences at the time, but they’ve all been largely forgotten in the meantime just because the global economy made a point of pushing past them.
The big takeaway for investors is just that the stock market eventually managed to make record highs after each of these events. The tariff standoff was never going to be any different, and whatever’s next won’t be any different, either. It’ll just be another great long-term buying opportunity. Again, capitalism always finds a way, sooner or later.