How Client Portfolios are Navigating Tariffs 

Why are the Markets Far More Bearish on the Economy in the last week?

• On the evening of Wednesday, April 2, the market realized that Trump’s tariffs were being made “permanent”.
  • Given these tariffs make many imports more expensive (inflation), the market is worried that individuals and companies will have to spend much more income to get the same basket of goods.
• Additionally, many of the countries the tariffs affect have retaliated in kind, implementing similar tariffs on the U.S., making many U.S. exports significantly more expensive.
  • So, the market is concerned that export sales will decrease quite a bit.
• This double whammy of more expensive imports and exports is causing economists to mark GDP projections way down.
  • And many firms are now thinking, for the first time in a while, that recession is more likely than not.
• Finally, individuals and companies are not only concerned about global tariffs, per se.
  • As or more importantly, they fear the uncertainty of not knowing how trade policy will go from here.
• • This causes many economic actors to “freeze” and/or delay economic activity because they feel they cannot plan.

What Happened in Markets this Past Week?

• The selling this past Thursday, April 3 and Friday, April 4 was fast and furious.
  • In those two days the S&P 500 was down ~11%, the worst back-to-back losses in 5 years (COVID).
• The selling did slow the last couple of days.
  • On Monday, April 7 and Tuesday, April 8, the S&P 500 was down almost another ~2%.
• • While directionally this is still down, the rate of decline slowed quite a bit, as some investors began buying the dip.
• • At one point during Tuesday’s session, the S&P 500 was up ~4%.
• • While this is reason for a bit of optimism, it seems too early to know.
• As of the market close on Tuesday, April 8, the S&P 500 was down ~19% from its all-time high in February
  • Hence, we are very close to an official Bear Market (decline of 20%+)
  • The S&P 500 is down ~15% YTD.

 
How are TWAG Client Portfolios Faring?

• As of Tuesday April 8 morning, those TWAG Clients utilizing dynamic tail risk hedging of their equities were enjoying gains around 5% from the dynamic tail risk hedging of their equities.
• In other words, at that time, said clients were down ~6% (net) in their equity portfolios as opposed to being down ~11% (S&P 500) since last Wednesday’s close.
• So, approximately half of clients’ stock market losses had been mitigated.
• More importantly, if longer-term volatility (i.e., 6-month VIX) continues to spike, the gains from dynamic tail risk hedging should accelerate at an even faster rate.
  • Hence, if things get worse, the net equity portfolio losses should go down and could even turn into net equity portfolio gains.
• Many TWAG Clients are also enjoying substantial long-term performance gains from unique private investments which are not very affected by market downturns
  • In many cases, we have allocated clients to such investments instead of being overly reliant on equities.

 
Market Outlook/Strategy from Here

• We may be very early in these global tariffs policy cycle.
  • Accordingly, higher than average volatility in markets over the next weeks and months seem likely.
  • Tariffs may get even more pronounced before potentially abating.
• For most, unless you need the liquidity now, this does not seem like an opportune time to sell equities.
  • For some, with a long-term view, a bit of buying may make sense.
• For those who are not dynamically tail risk hedging their equities and/or would like to learn more, we would be delighted to discuss!
• Also, for those who would like to learn more about enjoying substantial long-term performance gains from unique private investments which are not very affected by market downturns, we would love to discuss this as well!
• Happy to discuss markets/portfolios at any time, please feel free to reach out!

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