Tag Archives: market

Market Updates: Tariff Edition

4/2025

Well that was a week…

By now, we assume all Cahaba Wealth clients know that we do not react to short-term movements in the stock market. As we’ve said time and again, market volatility is a constant that allows stocks to generate higher returns than safer investments like cash and bonds. Successful long-term investment is difficult because it requires discipline.  Short-term pullbacks are frequently accompanied by narratives that only serve to reinforce the accompanied anxiety.  Telling yourself to remain calm and not react during these periods is what separates the opportunities from setbacks.

We were not surprised that President Trump announced tariffs on Wednesday.  What was a surprise was the breadth of the sweeping tariffs.  This subsequently caused panic and the resulting selloff in stocks. At the close of Friday’s trading, the S&P 500 was down nearly 10% in the last two days, and the S&P 600 (US small company stocks) lost almost 12% in that span. Selling has been indiscriminate and has spread to stocks around the world. We are not ones to react with panic to this kind of movement, but we certainly feel the need to comment on this climate.

As many of our long-term clients know, we have lived through several bizarre scenarios over the past 30 years. Between the 2000-2002 dot.com bubble bursting, the financial crisis of 2008-2009, Covid, and the bond bear market of 2022, it’s been a whirlwind. During these phases, we have used financial planning and cash flow projections to help our clients navigate these various challenges.  In most cases, they continue to thrive and achieve financial goals. Even with those specific market downturns, portfolios continue to be positive over that timeframe, and investing remains the best option to outstrip inflation and grow assets. That perspective hasn’t changed with the recent announcements.

Perhaps one positive of this week is the return of bonds to the “safety” trade. US bonds are up roughly 1% this week, over 3.5% year to date, and are providing the cushion that a balanced portfolio should hope for during stock downturns. Diversification works!  With the 10-Year Treasury at or below 4%, we may also see a decrease in Federal interest payments and the possibility to refinance recent mortgages.

The stated goal of the tariff strategy is to bring more balance to the global trade landscape and improve US national security.  Both goals are logical and appear to be in the best long-term interest of the United States.  However, achieving these goals is complicated. Onshoring manufacturing and negotiating reciprocal trade agreements does not happen overnight.  In addition, the near-term impact of tariffs is perceived by economists as an immediate tax. The desire to have the United States economy increase the percentage of GDP generated through manufacturing is achievable but will need to be navigated carefully to avoid major economic disruption. 

The unpredictable nature of how the tariff strategy was announced is causing the markets the most consternation. One thing that markets hate is uncertainty.  Is The President simply using this as a negotiating tactic with each country to get a better deal? How long will these tariffs be in place? Will the tariffs end up either receding or going away altogether?  We currently don’t know the answer to any of these questions.  What we do know is that once clarity returns, stocks will rejoice.

We hold our convictions that planning and long-term views of cash flow allow clients to weather any storm. Your asset allocation is designed for this very situation. Where possible, we will explore opportunities to use this downturn to our clients’ long-term advantage. If you feel more anxiety and concern about your portfolio than you normally might, it may be a sign that your risk tolerance is not in line with your asset allocation. Please reach out if you would like to discuss in greater detail. In the meantime, we are confident that this pullback will join the previous selloffs as a long-term buying opportunity.

As always, thank you for your trust and confidence.

Cahaba Wealth Management is registered as an investment adviser with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser does not constitute an endorsement of the firm by the SEC nor does it indicate that the adviser has attained a particular level of skill or ability. Cahaba Wealth Management is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. Content should not be construed as personalized investment advice. The opinions in this materials are for general information, and not intended to provide specific investment advice or recommendations for an individual. Content should not be regarded as a complete analysis of the subjects discussed. To determine which investment(s) may be appropriate for you, consult your financial advisor.

The Case for International Stocks

4/2023

By Don Keeney, CFA, CFP®

Many of us have heard statistics1 claiming:

  • Domestic stocks have outperformed international stocks eight out of the last ten years.
  • Domestic stocks have outperformed international stocks by a cumulative 20 percentage points over the last three years.
  • Domestic stocks have outperformed international stocks by a cumulative 50 percentage points over the last five years.

These truths make it seem as though investing in international stocks is a complete waste of time. To help explain why that’s not the case, let’s take a look at some additional data.

Figure 1

The above chart containing data from 1973 to 2022 outlines the following:

  • Over the last 50 years, domestic stocks have outperformed international stocks only 59% of those years.
  • International stocks have outperformed domestic stocks 100% of the time when domestic stocks had returns of less than 4% for the year.
  • International stocks have outperformed domestic stocks 96% of the time when domestic stocks had returns of less than 6% for the year.

Some of what we hear is rooted in Recency Bias. Recency bias is a behavioral pattern in which people incorrectly believe recent events will soon either occur again or persist indefinitely. This bias inhibits an individual’s ability to objectively gauge probabilities, which can lead to poor decisions. While domestic stocks have outperformed international stocks more recently, this has not consistently been the historical norm – nor can we say it will be the case in all future years. We have to separate recent market occurrences from future anticipated market movements.

There is solid evidence that shows the outperformance of one stock market over the other occurs in long cycles (see figure 2). The current cycle is now over 12 years long (including 2023 year-to-date). However, immediately before the current cycle started, international stocks outperformed domestic stocks for roughly eight consecutive years. While the below graphic consists of 5-year rolling returns and not stand-alone calendar years, the perspective remains meaningful. The current cycle is not going to last forever. Investors should acknowledge recency bias and expect the market to NOT stay that way.

Figure 2

When is the next cycle going to start? Who knows! Was international’s outperformance in 2022 the start of a new, long-term outperformance cycle? Who knows! Only one thing remains certain: at some point, the current performance cycle will flip, and international stocks will outperform domestic stocks (at least until the next cycle begins).

With this in mind, Cahaba Wealth Management appropriately constructs your investment portfolio to maximize the potential return for an appropriate amount of risk over the long term. The conversation above about which asset class is going to outperform another asset class actually misses the bigger, more important idea at play: diversification. Diversification is the process of spreading your investments around to multiple different asset classes so that your exposure to any one type is limited. As we tell our clients, diversification is the only “free lunch” in investing!

In other words, an investor can purchase two (or more) risky assets and simultaneously (1) improve the expected rate of return for the combined portfolio AND (2) reduce the portfolio’s overall expected risk. Diversification is a true “two-for-one special”! The only caveat is that the assets cannot act exactly like each other – meaning the assets should not have the same performance and volatility patterns. The more dissimilar the returns are, the larger the “free lunch”.

The takeaway is not to ask if international stocks will ever outperform domestic stocks again (or vice-versa); instead, it is to capitalize on the value of diversification and the resulting higher expected returns, with lower volatility, over your long term investing horizon. The inclusion of temporarily underperforming asset classes will always remain a positive contributor to your portfolio, given the power of diversification!

Don Keeney, CFA, CFP® is a financial advisor in the Nashville office of Cahaba Wealth Management, www.cahabawealth.com.

Cahaba Wealth Management is registered as an investment adviser with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser does not constitute an endorsement of the firm by the SEC nor does it indicate that the adviser has attained a particular level of skill or ability. Cahaba Wealth Management is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. Content should not be construed as personalized investment advice. The opinions in this materials are for general information, and not intended to provide specific investment advice or recommendations for an individual. Content should not be regarded as a complete analysis of the subjects discussed. To determine which investment(s) may be appropriate for you, consult your financial advisor.

1Source: ycharts.com