Patricia N. from Jackson, MS asks: Hello Mitch, I’ve been seeing some advertisements recently about needing to buy goods like home appliances before the tariffs take effect, because prices are likely to go way up. Do you think this is accurate? From an investment standpoint, I also wonder if there are some winners and losers to consider from an all-out trade war? A lot to consider, I know. Thanks for your time.
Mitch’s Response:
Thanks for writing, Patricia. It sounds like some of the retailers you follow are using the threat of higher prices to encourage consumers to pull forward purchases. While there may be a real threat of higher prices are a result of tariffs, I also think it’s fair to view this as a marketing strategy to get consumers to buy more.1
Let’s consider what we know so far. President-elect Trump announced recently that he would implement an additional 10% tariff on all Chinese imports and a 25% tariff on all imports from Mexico and Canada, unless their governments worked more with the U.S. to stop the flow of drugs and undocumented migrants, respectively. Mexico has vowed to retaliate, and some believe China could devalue its currency to offset the impact. Both scenarios would be economic negatives.
Can Your Retirement Strategy Weather Economic Shifts?
Recent headlines about tariffs and trade wars might have you wondering how these developments could impact your financial future. Rising costs and economic shifts can create challenges for your portfolio—but with the right strategies, you can stay on course.
Download our free guide, How Solid Is Your Retirement Strategy?2 to learn how to navigate uncertainties like these. Inside, you’ll find:
- The importance of flexible portfolio allocation
- Why keeping some liquid assets can potentially help you preserve more wealth
- Understanding your risk tolerance in case of a market downturn
- Plus, more strategies to help you protect your retirement portfolio
If you have $500,000 or more to invest, download our guide to help you plan ahead!
Get our FREE guide: How Solid Is Your Retirement Strategy?2
It was essentially this announcement that some retailers used to launch campaigns to encourage consumers to “buy now,” anticipating that prices would inevitably go up along with tariffs. There is an element of truth to this reasoning, since we’d expect companies to pass along the cost of tariffs to consumers in the form of higher prices. According to the National Retail Federation, tariffs could cost shoppers up to $78 billion in annual spending power.
But this all being said, it cannot be known at this moment whether the tariffs will be enacted and/or for how long, and how companies may respond. Tariffs were largely used as leverage for negotiations in the first term, and we may see a similar strategy in this round.
From an investment standpoint, we can look to the Smoot Hawley tariffs in 1930 for clear evidence of the consequences of tit-for-tat tariffs and a global trade war. But there’s also plenty of historical evidence, including from Trump’s first term, where trade tensions and tariffs at the margin do not automatically trigger recessions. The magnitude of the tariffs and how vastly they’re applied globally are important, including whether they arrive as a negative surprise.
Many investors try to anticipate tariffs in trading strategies, such as selling the Mexican peso or automotive stocks. But again, the reality of tariffs is often quite different from the rhetoric that precedes them. Tariffs often start out very broad and then narrow substantially once exceptions are made and various parties lobby for carve-outs. Companies can also adapt—moving supply chains to other unaffected countries and finding new ways to control costs. The bottom line for both consumers and investors, in my view, is to remain patient and see how things play out. History tells us that the bark is often bigger than the bite.
Rather than reacting to short-term headlines, it’s important to focus on strategies that can help you prepare for whatever lies ahead. Our free guide, How Solid Is Your Retirement Strategy?3, provides practical insights to build a resilient retirement plan, including:
- The importance of flexible portfolio allocation
- Why keeping some liquid assets can potentially help you preserve more wealth
- Understanding your risk tolerance in case of a market downturn
- Plus, more strategies to help you protect your retirement portfolio
If you have $500,000 or more to invest, get our free guide, today!
Disclosure
1 Wall Street Journal. November 29, 2024. https://www.wsj.com/business/retail/trump-tariffs-warnings-retailer-sales-fc270ca9?tpl=cb
2 ZIM may amend or rescind the guide “How Solid Is Your Retirement Strategy?” for any reason and at ZIM’s discretion.
3 ZIM may amend or rescind the guide “How Solid Is Your Retirement Strategy?” for any reason and at ZIM’s discretion.
DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.
This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable.
The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.
Questions posed are for demonstrative and informational purposes only and may not reflect the views of current clients or any one individual.
Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.