Podcast
The Risk is High, But so Is the Opportunity.
Will Simpson
April 21, 2025.
As we’ve been saying for the last 6 months, now is the time to expect the unexpected and be ready for anything.
Financial markets have been on a wild ride over the last few weeks since “Liberation Day”.
First, markets went on a 12% decline over four days after President Trump announced sweeping global tariffs. Next, markets went up 10% for one of the biggest single-day rallies on the back of his announcement to ease tariffs. Since then, markets have been mixed but still very volatile. Now, Trump has ramped up attacks on Fed Chairman Powell, adding to investor concerns and leading to more uncertainty and downside to start the week. As investors, this has been an absolute rollercoaster ride.
The risk out there is high right now, there is no question about it. The political and economic uncertainty seems to be about as high as it gets. Overall, financial markets have sold off and have dropped about 10%-15% since mid-February. The news is just about as negative on tariffs and the state of the world as any point we have seen in recent memory. The political storm and news flow out there is absolutely crazy. Trump’s tariffs have created a level of volatility in financial markets we haven’t seen in years. It feels a lot like COVID in terms of the fear, uncertainty and doubt that is out there in the world.
Markets continue to struggle under policy uncertainty, whether it be trade, DOGE or now even central bank independence. It is possible that, from a market reaction function, tariff uncertainty may have peaked early in early April. Nonetheless, this is a fragile market. And the concern may turn to the hard economic data and earnings. While both remain stable, given the duration of this uncertainty, this may change in the coming months. Unlike policy uncertainty that can be soothed with a tweet or Truth Social post, potential softness in hard data is not so easily solved.
It’s important to understand the reasons why this is happening. Tariffs introduce a massive level of uncertainty into the global economy, and the way that Trump has gone about putting them into place in an erratic on-again and off-again fashion has sent the markets reeling. Tariffs have a huge impact on corporate earnings, forecasts and bottom-line results. It’s impossible to predict what Trump will do or say next when it comes to the tariffs or just about anything, and that only adds to the level of uncertainty in markets. Businesses and investors don’t know what the future is going to look like, as nobody knows what Trump’s next move will be. Given that we have very little visibility on tariffs, Trump and the economy, where can we look to get some answers?
At Aretec Wealth, one of the things we look at is the actual behaviour of the financial markets.
Looking at what markets are actually doing gives us a very good understanding of what’s working and what’s not working. This is called technical analysis, and it helps guide us to see when markets, sectors and positions are in favour or out of favour and present risk or opportunity. It helps guide our active and tactical approach to portfolio management. Most financial advisors and portfolio managers will never look at this for you. At Aretec Wealth, we look at this every day.
So, what are the markets telling us about all of this? One important point to highlight is that the market is in a very washed-out, oversold condition right now. It’s at the same sort of level we saw in the Fall of 2022, March of 2020 and December of 2018. Historically, these sorts of market levels present the best buying opportunities and entry points and see the most upside over time. The risk is high right now for sure, but so is the opportunity.
That doesn’t mean we are out of the woods just yet. Oftentimes, in bad markets or bear markets, you see multiple bottoms forming, each one lower than the next. This is what happened in 2022 and also in 2008-2009. So, unfortunately, it’s possible we could see more downside. There might be more negative tariff news and announcements coming, which could put pressure on markets. It’s also possible that we could have seen the low in markets, and everything starts working its way back up. We might have seen the worst of the tariff news priced in two weeks ago, and as new trade deals and negotiations happen, markets slowly climb their way back up.
When markets are oversold, we tend to see more volatile conditions, so bigger rallies to the upside and sharper moves to the downside. That’s exactly what we’ve been experiencing in the markets over the last few weeks. When markets get to these sorts of levels, about 50% of the time they eventually make another move down, but that could be weeks or months from now. And 50% of the time, markets work their way back up to new all-time highs and beyond. So sometimes bad markets last longer, other times they recover much faster.
This is the reason you want to have an active and tactical advisor to navigate you through times like this. Although it may be hard to believe, this period in the market might have been the bottom and the worst of it. We might see a major rally over time off of what just happened, and we resume back into a bull market with markets going up. It also might be the first low or bottom over the coming weeks and months, so a longer-term bear market, with markets moving sideways or down. Either way, our commitment is to manage through the uncertainty. We are going to work to take advantage of and capitalize on opportunities when we see them. And we are also going to look to manage risk as it shows up in financial markets. As we’ve been saying for the last several months, now is the time to expect the unexpected and be ready for anything.
We want you to Realize Your Wealth™.
Best,