Investors Scramble as Tariffs Shake Markets: Expert Strategies to Safeguard Your Portfolio
The global financial landscape is facing significant turbulence as the U.S. imposes tariffs on its trade partners, leaving investors scrambling to recalibrate their portfolios. The fear of rising costs and stalled economic growth has gripped markets, with many strategists warning of the potential fallout from these protectionist measures. However, top investment gurus are offering clarity and direction, pinpointing sectors and strategies that could help investors navigate this uncertain terrain.
Tariffs and Their Impact on the Stock Market
The U.S. stock market has been on a rollercoaster ride as trade tensions escalate. The S&P 500 recently dipped 6% from its mid-February highs, while the Nasdaq Composite, which is heavily weighted toward growth stocks, fell 8% from its peak. President Donald Trump’s campaign promise to impose tariffs on key trade partners has come to fruition, with the goal of securing political wins and boosting government revenue. However, economists and strategists caution that the risks of such a policy far outweigh the potential rewards. David Kelly, a veteran strategist at JPMorgan Asset Management, has been vocal in his opposition to tariffs, warning that they could lead to higher prices, slower economic growth, reduced profits, increased unemployment, and heightened global tensions. "Other than that, they’re fine," he quipped sarcastically.
While some market participants downplay the risks, arguing that Trump may be bluffing or that trade disputes could be resolved through diplomacy, others believe the threat is real. Brian Mulberry, a portfolio manager at Zacks Investment Management, acknowledges the gravity of the situation but believes the market’s reaction may be overblown. "The threat is real; I certainly agree with that," he said in an interview. "But the reaction of the market is a little bit overdone." As the situation unfolds, one thing is clear: Trump’s bold trade strategy has left markets on edge, with no clear blueprint for investors to follow. Callie Cox, chief market strategist at Ritholtz Wealth Management, noted that tariffs of this magnitude haven’t been seen in about 100 years, emphasizing the unprecedented nature of this policy shift.
Defensive Sectors Shine as Investors Seek Shelter
In the face of this uncertainty, strategists are advising investors to adopt a risk-off approach by shifting their focus to defensive sectors. These sectors, which include healthcare and consumer staples, are less sensitive to economic fluctuations and trade policy changes. "This is the time to play defense and to really protect yourself," said Callie Cox. These industries are more resilient during economic downturns because they provide essential goods and services that remain in demand regardless of economic conditions. For instance, healthcare and consumer staples have been among the best-performing sectors this year, as investors seek safe havens from the turmoil.
Grant Stark, director of research at CapWealth, highlights healthcare as a particularly attractive option, pointing to the long-term demographic trends driving demand for medical services. "America is aging, and no tariff will slow that trend," he said. "There will likely be more demand for advanced medicines, skilled care, and other health-related segments." Stark recommends keeping an eye on pharmaceutical giants like Merck and Gilead, as well as pharmacy retailer CVS Health, which is well-positioned to benefit from the aging population. Brian Mulberry, however, advises caution when it comes to companies that manufacture pharmaceuticals offshore, as they may be more exposed to tariff-related disruptions.
In addition to healthcare, financials are also emerging as a resilient sector despite concerns about economic slowdown. Wall Street has been buoyed by deregulation under the Trump administration, which could spark more deal-making activity. Furthermore, financials are less directly exposed to tariffs compared to sectors like materials or industrials. "If you think about sectors that are not as exposed to goods production, financials are the obvious one there," Cox said. "Banks don’t have supply chains." Within the financial sector, Progressive, a major insurance company, stands out for its ability to adapt to changing market conditions by adjusting its advertising spending. If the economy weakens, the company can scale back its marketing efforts, even if it means fewer appearances by its iconic spokeswoman, Flo.
Quality and Tangible Assets Take Center Stage
As tariffs continue to roil the markets, investors are being advised to prioritize quality stocks across various sectors. This means focusing on companies with strong balance sheets, steady earnings, and the ability to thrive in any economic environment. Gabriela Santos, chief market strategist for the Americas at JPMorgan Asset Management, emphasizes the importance of large and midsize companies, which are often better equipped to weather economic storms. She notes that small-cap companies, while promising, may face higher earnings expectations that could be derailed by slower economic growth.
In addition to equities, real assets like gold are gaining attention as investors seek diversification amid heightened economic uncertainty. Santos suggests that such assets could become more prominent as inflation and fiscal concerns take center stage. "Other diversifiers are needed when inflation and fiscal concerns take the lead again," she wrote. This strategy aligns with the broader theme of seeking stability and predictability in an increasingly volatile market.
Fixed Income Emerges as a Hedge Against Market Volatility
Another key strategy for navigating the current environment is to add exposure to high-quality fixed-income assets. Bonds offer a critical hedge against falling stock prices and slower economic growth, while also diversifying portfolios. With bond yields hovering well above pre-2020 levels and pandemic lows, investors have the opportunity to lock in solid, guaranteed returns. Matt Stucky, chief portfolio manager of equities at Northwestern Mutual, notes that bonds provide protection against weaker economic growth during trade disputes. "If there’s any place to hedge against the downside risk to growth that comes from trade uncertainty, it is high-quality fixed income," he said.
Callie Cox concurs, though she highlights the importance of keeping an eye on inflation-protected securities, such as Treasury Inflation-Protected Securities (TIPS), to guard against potential price increases. "Holding on to some inflation protection is prudent because the risk of higher prices certainly hasn’t gone away," she said. This dual approach—balancing traditional fixed-income assets with inflation-protected securities—offers investors a way to mitigate multiple risks simultaneously.
Balancing Act: Building a Resilient Portfolio
As investors navigate this complex landscape, the key is to strike a balance between growth and protection. While defensive sectors and fixed-income assets provide a buffer against market volatility, it’s also important to maintain exposure to high-quality stocks that can deliver long-term growth. This balanced approach allows investors to ride out the current storm while positioning themselves for future opportunities. "It’s not cheap—you’d be hard-pressed to find a better company, fundamentally," said Greg Halter of Carnegie Investment Counsel, pointing to biopharma firm Amgen and medical device maker Stryker as examples of quality investments.
Ultimately, the tariffs imposed by the U.S. have introduced a new layer of uncertainty into global markets, but they have also created opportunities for investors who are willing to adapt. By focusing on defensive sectors, high-quality stocks, and fixed-income assets, investors can safeguard their portfolios while remaining positioned to capitalize on future growth. As the situation continues to evolve, staying informed and maintaining a disciplined investment approach will be key to navigating the challenges ahead.
