The stock market has experienced a tumultuous selloff in the last few trading sessions and very high volatility is likely to continue. At times like this, we like to reach out with insight and perspective.

We start by admitting to a level of uncertainty about the economic outlook comparable to how we felt in March 2020. We wrote then during the early stages of a pandemic, a period of shutdowns and other emergency measures last experienced in 1918. Today we write in the early days of a “trade war” and are mindful the US hasn’t been involved in such economic conflict since 1930. The psychology of leadership, as it manifests day by day, is another complex factor. Therefore, in writing today, our customary dispassion and objectivity is supplemented by considerable humility.

TARIFF TURMOIL

Much has been written about the April 2^nd tariff announcement, which provoked this global selloff in stocks, with especially severe declines in the US. What has been proposed is indeed very significant. Barron’s estimated the tariff rates to be the highest since 1929, while another analysis identified the overall rate as the highest since 1904. The proposed tariff rates were much higher than expected, even above the “worst case” scenarios developed by respected analysts. Much has been written about the potential economic and geopolitical fallout, both short-term and long-term. Most commentaries have been very critical of the policy, and pessimistic as to the implications for economic growth, inflation, and foreign policy.
 

There are some who believe the “shock & awe” of April 2nd will lead to negotiations and significant concessions by many countries, vindicating a boldness and genius not yet appreciated by critics of the tariff policy. However, if tariffs are negotiable, and could be significantly reduced or eliminated, companies may be more hesitant about investing in the US, which is an expressed objective of the strategy. Bartlett has been dismayed by the entire episode. There are undoubtedly some bad actors in global trade (i.e. China) but trade deficits aren’t always evidence of cheating. We don’t believe our country has been cheated by the likes of Germany or Canada, any more than we’ve been cheated by the barber or the grocer, even though we have “trade deficits” with both.

PANICS and SELLOFFS

Bartlett has experienced many market selloffs over the years. We routinely tell clients of the historical frequency: a 5% decline is likely three times a year, a 10% decline is probable once a year, and a 20% decline happens every 3-4 years. Mindful of its inevitability, we factor turbulence into our investment management and financial planning. Periods of crisis and turmoil demonstrate the importance of safeguards provided by asset allocation, diversification, and careful planning for withdrawal requirements. These measures won’t make a portfolio shockproof, but they should minimize the costly behavioral penalty that results if an investor must sell during market declines.

During turbulent times, we reflect on prior market setbacks for perspective. Below we recall several selloffs that, like this latest, were both quick & severe and provoked by a unique event.

The 2020 Pandemic

In just five weeks, from February 19^th to March 23^rd, the S&P 500 Index fell 34%. Who can forget the shutdowns and all the uncertainty? Fortunately, an aggressive monetary and fiscal policy response was followed by indications of progress on treatments and vaccines. Stocks fully recovered from the losses by August, and the S&P 500 posted a double-digit return for the year.

September 11, 2001

After the terrorist attacks on the morning of September 11^th, the US stock market was closed until the following week. When markets reopened on September 17^th, the S&P 500 fell 5% and the Dow Jones Industrial Average fell 7%. For the entire week, the Dow Jones plummeted 14% and the S&P 500 plunged 12%. However, an aggressive fiscal and monetary policy response was implemented, additional terror attacks did not occur, and stocks recovered to pre-9/11 levels by mid-October.

October 29, 1987

The Dow Jones Industrial Average fell 22.6% in one day. Many in the financial media deemed this an omen for the US economy, believing America was destined for a bust following a 1980s boom. Comparisons to the 1929 crash were common. Defying the skeptics, the economy kept growing and stocks were back at record highs in the first half of 1989.

September 26, 1955

In 1955 the US economy was booming, the stock market hitting record highs, and President Eisenhower was routinely above 70% approval in Gallup polls. Then, on Saturday September 24^th, Eisenhower suffered a severe heart attack in Denver, where has was vacationing. The following Monday, the Dow Jones Industrial Average fell almost 7%, the worst one-day decline since 1929. Fortunately, Ike’s health stabilized in the ensuing weeks, and the crisis passed. Stocks were back to pre-heart attack levels by mid-October and finished 1955 at a record high. Eisenhower went on to a re-election landslide in 1956.

We cite these events because they demonstrate the importance of calmness and fortitude during market selloffs. All of these setbacks seemed very ominous at the time. Stocks cratered quickly, like a lightning strike. But after the immediate fallout, markets rebounded fairly quickly.

In a prior commentary we suggested that a market decline might be necessary to promote some moderation. How severe? We just don’t know. During the 2008 global financial crisis, the stock market had a severe one-day drop on September 29^th when the Dow Jones crashed by 7% and the S&P 500 by 9%, after Congress voted down the TARP stabilization plan. Congress was chastened by that rebuke; an almost identical plan was approved only a few days later and signed by President Bush.  At least from the market’s perspective, there has been a significant tariff policy overreach that needs to be addressed. We are already hearing of stimulative measures that may be included in upcoming tax legislation, which could offset some of the negative fallout from tariffs.

We certainly hope this latest selloff will bottom out soon, but we know it’s fraught with all manner of possibilities, just as the episodes cited earlier were loaded with uncertainty at the time. History does show how quickly the market can rebound if conditions improve, penalizing those who flee from stocks. Bartlett has navigated lots of adversity over many years of investing, guided by our investment policies rather than by emotions. We know that bad markets provide opportunities both in investments and financial planning, and our goal will be to capitalize on them.

We close with thanks for your consideration and gratitude for your trust.

DISCLOSURE
This material provided by Bartlett Wealth Management (“Bartlett”) is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Nothing in these materials is intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Opinions expressed by Bartlett are based on economic or market conditions at the time this material was written; actual economic or market events may turn out differently than anticipated. Facts presented have been obtained from sources believed to be reliable. Bartlett, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.