• Trump tariffs spark chaos, market undergoes correction
  • Avoid panic selling, focus on fundamentals, says Morningstar’s Lochlan Halloway
  • Companies with moats should weather the storm 

 

You might have noted that in the few months immediately after his inauguration, Wall Street had been giving Donald Trump a big ol’ thumbs up.

But now the situation has flipped on its head.

Trump’s tariffs on China, Canada and Mexico, combined with his threats against the EU and other nations, have sparked a full-blown trade war, throwing global markets into chaos.

Last Thursday, the S&P 500 pushed its three-week slump to over 10%, a level that meets the technical threshold for a correction. The tech-heavy Nasdaq had also earlier crashed into correction territory.

The ASX couldn’t dodge the bullet, either, dropping nearly 10% from its record high in February, itself now edging closer to correction territory.

Trump, for his part, has been dodging questions when asked about a potential US recession.

“I hate to predict things like that. There is a period of transition, because what we’re doing is very big,” Trump told Fox.

“We’re bringing wealth back to America. That’s a big thing. And there are always periods of… it takes a little time. It takes a little time, but I think it should be great for us.”

 

What’s the deal with market corrections anyway?

Simply put, there are a few reasons it can happen – a slowing economy, rising interest rates, or even something left field, like a pandemic.

But sometimes, it’s just general fear running wild.

“As we’ve mentioned before, panic selling is a terrible strategy,” said a note from Aussie trading platform, SpaceShip.

“When you panic sell, you’re removing the chance for your investment to recover in value.

“If you panic sell your investments at a low, it could lead you with less of an inclination to try investing again – potentially missing out on future gains in better conditions.”

Here’s a fun fact: MIT research revealed that those most likely to panic sell are men over 45, married with children who have ‘self-described excellent investment experience’.

“But not all selling is panic selling,” SpaceShip acknowledged. “There are legitimate reasons to sell, too.”

“Some reasons can include your investment underperforming the market, that you’ve lost faith in its management or strategies, or that you need the money soon and you think it’s going to get much worse.”

 

What the tariffs are doing to companies

Peter Orszag, CEO of Lazard, reckons the tariff chaos is making big businesses second-guess their next move.

“The amount of uncertainty that has been created by the tariff wars with regard to Canada, Mexico and Europe, is causing boards and C-suites to reconsider the pathway forward,” he said.

Most people can understand the tension with China, Orszag added, but this broader trade fallout is just confusing and if it drags on, it could do real damage to the US economy.

But here’s the scariest part.

Even with all the sell-offs, many experts believe Wall Street is still not exactly cheap, which could be the trigger for a bigger correction.

“It’s understandable people are starting to be a little concerned and starting to take profits,” said Michael O’Rourke at JonesTrading.

 

How investors should deal with the fallout

Morningstar’s Lochlan Halloway has just dropped a note to Stockhead on how to handle the Trump tariffs and the current market turbulence.

He said that when Trump won, stocks such as Trump Media and Tesla spiked, but those gains have faded. Trump Media’s stock has almost halved since the election, and Tesla’s down about 15%.

Even Bitcoin, another asset linked to Trump’s policies, has dropped more than 20% since the inauguration, although it’s still above pre-election levels.

The message here is clear: predicting the future is tough, and even if you think you’ve nailed it, your bet might not pan out as expected.

Halloway’s main advice is to avoid one-way geopolitical bets, because we simply don’t know how things will play out.

“Nobody does. So, loading up on bets that only pay off in one future state of the world doesn’t seem prudent,” said Halloway.

Instead, focus on the fundamentals, he said.

While uncertainty is high, it doesn’t mean you should avoid all risky assets or jump into “safe-haven” investments just because they seem stable.

“Consider what’s priced into an asset, rather than following the herd,” he advised.

 

One ASX stock that could ride out the storm

Halloway also highlighted the importance of companies with strong competitive advantages, or “moats,” to weather external shocks.

A great example of this is Breville (ASX:BRG).

While the appliance maker is exposed to US tariffs, its pricing power allowed it to pass on tariff costs without hurting its margins.

“Breville’s pricing power is exceptional,” Halloway explained.

“During the US-China trade war of Trump’s first presidency, Breville passed tariff costs directly to its customers and margins hardly budged. Many of its competitors, who lack such a moat, didn’t fare so well.”

Finally, Halloway advised investors to tune out the noise and focus on the long term.

One of the advantages of individual investing is you don’t have to react to short-term market fluctuations unless you absolutely need to.

“And if you have some dry powder, you can take advantage of the opportunity’s dislocation creates. We expect the big tariffs will prove transitory, and haven’t changed our long-run outlook for most ASX-listed companies.

“We may be wrong on this, and if it becomes clear Trump is in it for the long haul, we will revisit our assumptions.

“But for now, we’re staying the course – though the market could be in for a bumpy ride over the next few months,” said Halloway.

 

This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decision.

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