- Washington’s tariff threats and global counter-responses are fueling market uncertainty and risk.
- Investors face potential stagflation, prompting strategic asset allocation and cash management.
- Experts advise cautious stock moves, favoring high-quality bonds and Big Tech for recovery.
Washington’s tariff threats are real but not the only problem: the continued counter-responses from other countries have turned this trade war into a vicious cycle that makes it hard for any seasoned economist to call the endpoint. And that type of ambiguity is making markets nervous.
There has been a significant reevaluation of risk and a sentiment shift to the downside for markets, said Jim Baird, the chief investment officer at Plante Moran Financial Advisors. He services clients with net worths beginning at $500,000, which he calls the “millionaire-next-door” type. In other words, they aren’t yet in the ultrawealthy range where they can sit a downturn out or resort to private investments.
This group of investors has enough exposure to public markets that it could seriously impact their wealth. It’s a predicament that has put money managers at the forefront of rethinking their clients’ exposures relative to their needs amid a rapidly shifting economic environment.
Baird isn’t expecting a near-term recession but is concerned about the risk of stagflation, when inflation and unemployment both remain high. For that, he’s assessing whether clients have enough cash to cover their monthly needs and any big payments they may have coming up. This helps them avoid selling equities when the market is down. It’s typically known as the emergency fund. But clients who are retired or nearing retirement should aim to have six to 12 months of their needs in cash. As for those who still have a wage and aren’t worried about losing it, carrying too much cash doesn’t make sense, he added.
He is also coaching clients on strategic asset allocation while reviewing their portfolio positioning. When the stock market is volatile, it could be an opportunity to move some positions around, he noted. But those decisions would be made based on an individual client’s needs. For example, if they don’t have enough exposure in large caps, this could be a time to top that position while offloading other areas that could be used for tax-loss-harvesting purposes.
“Coming off of the last few years, equity investors, in particular, have done pretty well,” Baird said. And so they may be in a decent position to reduce portfolio risk without risking their ability to meet their long-term goals and objectives.”
For those who don’t want to take too much risk on stocks or are already dependent on their investment portfolio, he advises them to lean into high-quality bonds that still provide a good enough yield. But he doesn’t suggest longer-duration bonds in case there’s an uptick in inflation.
Ken Mahoney, the CEO of Mahoney Asset Management, advises those with net wealth between $1 million to $ 10 million in assets. He has been helping clients trim some of their positions since late last year and into 2025. But not because of the trade wars, per se: He was concerned that the stock market hadn’t seen a correction in some time and expected a 10% pullback at some point.
While things look gloomy right now, he’s also prepared for a large change in the president’s tone and policy that could bring markets flying back. His strategy with clients has been to remain tactical while watching for positive signs of change.
For those who feel like they missed the curve and the market has already turned for the worst, Mahoney says it’s not too late. Investors can still make some tactical moves. Just see this as a time when the good stuff is on sale and go shopping for high-quality stocks.
He expects a rally back into Big Tech stocks like Apple, Microsoft, and Nvidia when the market begins to recover— although he can’t guarantee when that will happen. But since these names are the most liquid stocks, institutions will add them back into their portfolios as fast as they offloaded them, he said. These companies are also supported by strong fundamentals, big balance sheets, and hefty cash, and they remain key to long-term technological innovations.
However, there’s still risk in the market, which means sectors like small caps may not be the place to go looking for sales. Mahoney is only sticking to the Mag 7 and potentially other stocks with relative balance sheet strength.
“We are growth managers, so that is where we will stay focused in looking to nibble at tech, and the key word there is nibble as this is not a place to get aggressive at all,” Mahoney said. “We like to buy high and sell higher and buy confirmed strength more in the markets we had in 2023 and 2024.”
Once the indexes start making higher lows, Mahoney would consider becoming slightly more aggressive because it’s an early sign that the selling pressure is subsiding. Another sign he’ll be looking for is the cooling off of the CBOE Volatility Index, a measure of the S&P 500’s expected volatility.
In the meantime, for investors looking for broader exposure, he suggests dollar-cost averaging — buying fixed amounts at regular intervals — into the indexes if they have time to stay in the market. That’s because once we correct, you can gain an extra 10% from the reversal, Mahoney noted. And if we remain in freefall, that means more shares at a lower price, he added.
That said, you’ll want some cash or what Wall Street calls “dry powder” to set aside so you can buy. He recommends keeping that cash in money markets that can be liquidated at the par value of $1 at any point, making them a more flexible option over bonds.
