Given the recent market volatility that resulted from the Trump administration’s tariff announcement on Wednesday, April 2, we wanted to touch base and provide insight from the Lee Financial perspective. Currently, we are not taking any action on the portfolio because of the announcement. We remain comfortable with our current recommended managers and our current asset allocation mix.

Much of the current situation is very fluid and will likely remain so in the near term. But rest assured, we are monitoring all events and actively monitoring risks and opportunities. As facts change, our opinions will change.

[We note that this was originally published on 04.04.2025 and as of 04.11.2025, things have changed. Most specifically, the Trump administration paused the tariffs for 90 days on 04.09.2025. While the 90-day reprieve is a welcome development, uncertainty remains in the picture as the Trump administration looks to negotiate tariff deals with 70+ countries in 90 days. As such, in 90 days we could be right back where we started. Despite the pause, some tariffs remain in effect, all of which still have the same impacts we discuss below.

10% universal tariffs on all imported goods.¹
China tariffs were raised to 145%. China has since retaliated raised tariffs on U.S. imports to 125%.¹
Steel and aluminum tariffs remain at 25%.¹
Auto tariffs of 25% remain.¹
The Mexico and Canadian tariffs of 25% remain. This is on imports that are non-compliant to the existing U.S.-Mexico-Canada Trade Agreement (USMCA).¹]

WHAT HAPPENED?

While the Trump administration has telegraphed its desire to use tariffs to reshape the global order and U.S. economy, the breadth, timing, and magnitude of tariffs took Wall Street by surprise and led, in our opinion, to the large sell-off. Most of the consensus thinking was that the threat of tariffs was a negotiating ploy and any negative reactions from the markets would act as guardrails. While this thinking has slowly deteriorated over the past few weeks, there remains hope on the Street that things reverse.

Key tariff takeaways:

Sweeping tariffs implemented ¹
- A universal 10% tariff on all imported goods to the U.S. starts on April 5^th.
- Additional reciprocal tariffs on imported goods from select countries into the U.S. start on April 7^th.
  - These are about 60 nations with the largest trade imbalances with the U.S.
  - These rates vary depending on the depth of the deficit.
  - The administration used a simple formula to arrive at the reciprocal tariffs.
    - It took the U.S. goods trade deficit with a specific country, divided it by the value of goods imported from that country, and then divided that figure by 2.
    - For example, U.S./China goods deficit is $295B. The value of goods imported is $440B. So $295B divided by 440 is 67%. Divide 67% by 2, you arrive at 34%, which is the tariff imposed on China.
  - Existing tariffs remain intact.
    - The new tariffs announced do not replace prior restrictions.
  - Key exemptions
    - Canada and Mexico, the U.S.’s two largest trade partners, were notably left off the list, and their existing 25% tariffs (with important carve outs) will remain in place.
    - Additional goods carved out include steel/aluminum, copper, pharmaceuticals, and semiconductors, as well as lumber articles, bullion and energy materials that are not available in the U.S.
  - Historic economic impact
    - If fully implemented, the tariffs would increase the U.S. effective tariff rate from 2% to ~25%¹.

ECONOMIC IMPLICATIONS?

According to economists and financial analysts, tariffs are bad. Tariffs are essentially taxes on imported goods, which makes those goods more expensive for consumers and businesses. This can lead to higher prices overall, less choice, and even retaliation from other countries that can then hurt exports. In the long run, tariffs often reduce economic efficiency and hurt growth.

Key economic takeaways:

Recession risk has increased significantly.
- If tariffs remain, the economy may face a manufacturing downturn, i.e., we did it to ourselves.
- The aggressive restructuring of trade flows and supply chains could disrupt economic activity like the COVID-19 lockdowns.
Near-term inflationary risks
- Increase in costs will start to trickle through as most products purchased by the U.S. are made in countries negatively impacted by the announced tariffs.
  - Consumer electronics (China, Vietnam, Malaysia)
  - Apparel and footwear (Vietnam, Cambodia)
  - Autos (Canada, Mexico)
- Potential inflation levels could spike in the 1% to 3% range. ²
But prices follow demand.
- Consumers could pull back spending due to rising costs, lower confidence, or higher unemployment and could make the price surge temporary.
All eyes on the Fed
- Monetary policy remains tight.
- Current U.S. economic data is strong but is showing signs of deterioration.
- The Fed has indicated that it is in a wait and see mode and is not in a rush to cut rates.
- Chairman Powell made remarks today, Friday, April 4^th, that indicate the outlook is even more uncertain with twin risks of rising unemployment and higher inflation.
- With a potential slowing of the U.S. economy and a spike in inflation, the Fed is in a tough spot.

WHY IS THE ADMINSTRATION DOING THIS?

The goal is a structural reset of the U.S. economy and a movement away from Globalization. The aim of the Trump administration is to:

Rebuild domestic manufacturing
- Tariffs are the stick incentivizing overseas production to return to the U.S. to avoid the tariff.
Enforce fiscal discipline
- Tariffs are expected to generate revenue for the U.S. Treasury to help pay down the deficit.
- Shrink the size of the Federal government and lower deficit spending.
  - Think DOGE (Department of Government Efficiency).
- Drive corporate and consumer activity
  - Potential tax relief and other tax incentives are hoping to offset some tariff impacts.
  - Reduced regulations are expected to act as a tailwind to economic activity.
  - Increased U.S. production of goods is expected to increase U.S. based jobs.

WHAT ARE THE MARKET IMPLICATIONS?

If you recall our Q4 2024 Viewpoint, we highlighted various themes we are thinking about to shape the changes to our asset allocation. A few of these themes included (1) sticky inflation, (2) increasing volatility, (3) stretched equity valuations causing near-term risk. Lots of these themes are playing out as we expected.

Key market takeaways:

S. Equities fell yesterday between ~ 4% and ~6%.³
- S. markets fell again today in the same range as yesterday.⁴
Earning expectations are likely going to be under pressure.
- EPS adjustments are likely to come from weaker profit expectations.
The U.S. Dollar moved lower vs. international currencies.
Yields across the U.S. Treasury curve were lower.
- This morning the 10-year was down to 3.9%. ⁵

WHAT ARE OUR PORTFOLIO IMPLICATIONS?

As stated earlier, we are not making any changes to our portfolio allocations or managers. We continue to believe we are well positioned to these key themes outlined in our Q4 2024 Viewpoint and for the current volatility.

As we often state, we believe in the power of diversification. Through diversification, our goal is to provide our clients with peace of mind by building portfolios that are resilient to various market conditions. We also believe adopting a long-term investment perspective is essential for wealth creation, as the effects of compounding returns cannot be understated.

Key portfolio takeaways:

Well balanced for volatility
- We believe in the power of diversification, and it’s showing it now.
Fixed income is acting like the ballast.
- Our recommended fixed income managers are all showing positive YTD performance. ⁶
Equity diversification appears to be working
- Value strategies appear to be outperforming more growth focused strategies.
- Our international and emerging market managers remain in positive territory for now. ⁷
Real assets are also providing diversification.
- Our real estate position is positive YTD. ⁸
- As mentioned in our Q4 2024 Viewpoint, we are looking to add more of our portfolio to the real asset bucket.
- We are also looking to add an infrastructure manager(s) because: ⁹
  - It is uncorrelated to most other assets i.e., more diversification.
  - Acts as an inflation hedge.
  - Has tailwinds to growth. To name a few:
    - S. reshoring supply lines, manufacturing capabilities.
    - AI driving energy demand.

WRAPPING IT UP

We understand times like the last few days or the last few weeks, for that matter, are not pleasant. But remember that volatility is not risk, and we at Lee Financial view volatility as a feature of the market not a bug. We also believe that volatility often creates opportunities that we strive to take advantage of. As Benjamin Graham said:

“In the short run, the market is a voting machine, but in the long run, it is a weighting machine.”

Our focus at Lee Financial remains steadfast on the long-term fundamentals (weighting machine) that ultimately determine the true value of an investment. While no one can predict exactly how the future will unfold, we continue to focus on a balanced, long-term approach that seeks to capture growth while managing downside risks.

As always, please contact a member of your Lee Financial team if you have any questions.

¹ Statistics, dates, and formula from various new outlets including The Wall Street Journal, Bloomberg News, etc.

²Aggregation of various market strategists from major U.S. Investment Banks

³ Indices include S&P 500, Nasdaq, Russell 2000, etc.

⁴As of 4pm EST, 4/4/2025

⁵ Wall Street Journal

⁶ Artian High Income Fund; Baird Aggregate Bond Fund; Dodge & Cox Income Fund; Blackrock Strategic Income Fund. Performance as of 4/3/2024 per Morningstar

⁷ MFS International Growth Fund; Dodge & Cox International Stock Fund, GQG Emerging Markets Fund; ARGA Emerging Markets Value Fund. Performance as of 4/3/2024 per Morningstar

⁸Cohen & Steers Realty Shares. As of 4/3/2024 per Morningstar.

⁹ These are the opinion of Lee Financial and should not be solely relied upon as investment advice. See our Disclaimer for more information (below).

Disclaimer

The information contained in this article is provided for educational purposes only. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by LFC), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from LFC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. LFC is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the LFC’s current written disclosure statement discussing our advisory services and fees is available upon request. If you are an LFC client, please remember to contact LFC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services.

Lions and Tigers and Bears, Oh My!