"Tariff and Economic Anxiety Take a Toll on Bank and Brokerage Stocks"

Ladies and Gentlemen, buckle up! The market is in a tailspin, and it’s all thanks to the tariff wars and economic anxiety that’s got everyone on edge. Bank and brokerage stocks are taking a beating, and it’s time to figure out what’s going on and how to navigate this storm.

First things first, let’s talk about the elephant in the room: tariffs. The U.S. economy is about to test the axiom that uncertainty is bad for business like never before. The first weeks of the second Trump administration have been a whirlwind of economic policy moves, and the market is feeling the heat. Tariffs have been threatened, announced, canceled, delayed, or enacted—sometimes in a matter of days or even hours. Measures of economic policy uncertainty have soared to levels normally associated with recessions and global crises. Business leaders are shaking their heads, and investors are dumping shares of banks and brokerage firms like there’s no tomorrow.

Look at the KBW Nasdaq Bank Index—down 2.8% as of midday Friday. wells fargo, jpmorgan chase, and bank of america are all in the red. morgan stanley and Stifel Financial are feeling the pain too. This is a bloodbath, folks! The market hates uncertainty, and right now, there’s plenty of it to go around.

But it’s not all doom and gloom. Let’s take a look back at the 2018-2019 trade war. History doesn’t repeat itself, but it can rhyme. The 2018-2019 trade war had a significant impact on the US economy. It caused disruptions, price increases, and elevated uncertainty, which led to stalled US business investment and hiring. The Federal Reserve Beige Books reported that manufacturers in all Districts expressed concern about tariffs and in many Districts reported higher prices and supply disruptions that they attributed to the new trade policies. The firms continued to note greater uncertainty owing to tariffs and the threat of tariffs. Reports of tariff-induced cost increases have spread more broadly from manufacturers and contractors to retailers and restaurants. Manufacturers reported that tariffs led to higher costs of raw materials and lower profit margins. Trade-related uncertainty remained significant, causing some companies to decrease production levels and staff headcounts. Trade policy uncertainty led to reduced capital expenditures. Trade-related uncertainty remained significant, with some companies decreasing production levels and staff headcounts due to lower profitability.

The 2018-2019 tariff war also had a significant impact on markets, taking them on a roller coaster ride. It led to higher volatility as ups and downs were dictated by news flow on trade talks and the removal of tariffs/application of more tariffs. In general, there was a flight to perceived ‘safe haven’ assets globally. When talks broke down and/or additional tariffs were applied, US stocks sold off. When talks resumed, US stocks rose. Once the Phase I trade deal was announced in October 2019, US stocks rose significantly. The S&P 500 fell 4.38% in 2018 but gained 31.49% in 2019. Chinese stocks also experienced volatility and sell-offs during the trade war but experienced a recovery as the tariff war subsided. For 2018, the MSCI China A Index fell 30.16%. But for 2019, it rose 36.40%. In other words, tariffs caused short-term headwinds. Once markets grew accustomed to them and then a resolution was reached as the Phase I trade deal between the US and China was announced, volatility eased and financial markets reaccelerated.

So, what does this mean for today’s tariff war? We have to remember that protectionist measures have tended to result in less optimal economic growth globally in the near term but have not necessarily served as a long-term hurdle for the stock market. Nonetheless, a period of trade policy uncertainty could potentially weigh on markets, as it did in 2018-2019, until greater clarity emerges. We could see a similar scenario unfold this time as we did in the first Trump administration—lots of drama but no real longer-term impact. I am cautiously optimistic that will be the case.

But why have markets reacted so negatively knowing recent history? I think because many assumed the Trump administration would be focused on keeping stocks buoyant and would use tariffs as a threat rather than actually implement them. Maybe that was just wishful thinking. However, I think markets will adjust, then experience a hiccup if more tariffs are levied, and so on and so on, similar to what we saw in the first Trump administration.

Now, let’s talk about what this means for inflation and growth. In the near term, tariffs cause price increases, but they tend to quickly subside as tariffs are removed (which is why I have argued vehemently that when it comes to inflation, we should be far more worried about immigration policy) so they don’t typically result in sustainable inflation. However, tariffs can suppress demand. So I believe growth is a far bigger issue—and it’s the risk we need to worry about if tariffs stay on for a long period of time. Also, retaliation magnifies and globalizes the effects of tariffs, meaning the global economy could end up with less growth and higher inflation. Keep in mind that the US may have less to lose than any one trading partner, but if the war is being fought against a range of partners, the cumulative damage on the US economy could be greater than on any one partner.

So, what do you do now? First, stay calm. Panic selling is never the answer. Second, look for opportunities in sectors that are less affected by trade uncertainty. Technology, infrastructure, and financial services remain key sectors of interest for investors looking for selective opportunities despite broader uncertainty. Third, diversify your portfolio. Don’t put all your eggs in one basket. And finally, keep an eye on the news. The market is a living, breathing organism, and it’s always changing. Stay informed, stay agile, and you’ll be just fine.

Remember, the market is a marathon, not a sprint. Stay the course, and you’ll come out on top. Boo-yah! This stock’s a winner!