This Is Not 2022
Welcome to April! It’s no April fools but March was the biggest monthly decline of the C Fund since December 2022, which also ended the worst year for the stock market since the Great Recession. 2022 was awful, but I’m not ready to declare 2025 will be as bad, but I do think we will experience several months, periodically perhaps, of bad and mediocre returns.
As I have continued to write about, markets hate uncertainty, and we have seen nothing but uncertainty for many months. Tariffs have been inconsistent, with some tariffs imposed, lifted, and later reintroduced, creating market uncertainty. We have seen countries talk a tough game, and then when faced with tariffs, they back down and then sometimes double down. We have seen several peace efforts in Ukraine with no agreement, with the assumption that everyone just finds fighting easier than making peace. Finally, we see a steady string of attacks against US and International shipping in the Red Sea by the Houthis.
The absolute most disruptive items facing us right now are the tariffs and the expected impact on inflation. On April 2nd, President Trump is set to implement:
- Reciprocal tariffs on countries with trade deficits and high tariffs on U.S. goods
- 25% tariff on countries purchasing oil or gas from Venezuela
- Potential tariff adjustments on Canada and Mexico under USMCA
- Proposed 25% tariff on cars manufactured outside the U.S
- Additional tariffs may also be under consideration
The stated goal of these tariffs is to rebalance our trade relationships, bring down our unsustainable national debt (e.g., before the Federal Income tax, tariffs were how the US Government raised revenue), and strengthen National Security. In the long term, it is all good. Countries have placed tariffs on US goods for a very long time and our debt is probably not going to go anywhere, but just like with any debt, we must show good faith in attempting to pay it off. National security is one of the more nuanced pieces. Look up how many shipyards the US has compared to China.
However, in the short term it continues to be ugly because of all the uncertainty.
We have a bright spot, ironically, which is inflation. At 2.8% it continues to drop from near record levels (as recently as October 2024 it was 3.2%), but many fear increased tariffs will skyrocket inflation. Again, more uncertainty.
Another, somewhat out there, idea is that some say President Trump is trying to engineer a recession, not unlike the early years of President Reagan’s first term. There could be some truth to this. This theory postulates that a recession can reset some aspects of the economy, while also threatening to drag down the rest of the world. This risk to the world economy is speculated to be a major bargaining chip in trade negotiations. Come to table on tariffs or this recession will hit you harder and this will us. I don’t think he would specifically want to trigger a recession, but I do think he sees our economy as strong enough to increase tariffs for the issues laid out above (e.g., National Security) and he can bring other countries to the table before we get to a breaking point (i.e., US recession).
March was not a positive month, and I don’t see US equities in April being much better, maybe slightly positive. While the I Fund is decent for the year, I still see a lot of risk, especially with the unknowns in tariffs and their impact. The I Fund is showing positive trends and once the tariff fallout’s clear, I might dip into the I Fund later this year. However, my analysis is telling me to remain in the C Fund at 100%, but it’s risky with an increasing standard deviation (e.g., risk). Keep investing!
