Introduction

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The current economic and political environment is evolving rapidly, creating uncertainty for investors. Recent tariff escalations, Federal Government cost cutting initiatives, and shifting Federal Reserve policies have led to heightened market volatility. While these developments may create short-term pain, we do not feel we’re on the verge of a severe bear market, but more so laying the groundwork for long-term economic stability and investment opportunities.

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At GatePass Capital, we believe in maintaining a disciplined, long-term perspective. Market dislocations often create opportunities for patient investors who can weather short-term volatility in pursuit of long-term gains.

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1. The Return of Tariffs & Trade Policy Uncertainty

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Tariff Announcements & Market Reactions

The U.S. government has announced new tariffs aimed at key trading partners, including:

• 25% tariffs on imports from Canada and Mexico

• Additional 10% tariffs on Chinese goods

• Potential tariffs on semiconductor components from Taiwan

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These measures have led to market volatility, as investors and business owners assess their potential impact on corporate earnings and global supply chains. However, similar policies in the past have often been followed by adjustments that allow businesses to adapt.

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For example, last Friday we received a glimpse into the January international trade report through the Advanced International Trade in Goods data. This preliminary report showed a surge in imports, likely due to many businesses attempting to get ahead of anticipated tariffs. The short-term implications? If these estimates hold true in the upcoming March 6th full report, we can expect a drag on Q1 2025 GDP numbers. This is because imports are subtracted from the total production when calculating domestic GDP. Over time, we expect trade patterns to normalize as businesses adjust to the new tariff landscape and supply chains stabilize.

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Short-Term Pain, Long-Term Gain?

History suggests that while tariffs can initially disrupt markets, they can also encourage domestic investment and economic realignment. Recent developments such as Taiwan Semiconductor Manufacturing Company’s (TSMC) $100 billion investment in U.S. production highlight how policy shifts can drive long-term economic benefits.

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Investor Takeaways

Market reactions to trade policy shifts are often short-term and sentiment-driven. The chart below by Goldman Sachs shows the S&P 500 reaction following Trump’s initial tariff announcements in 2018 and 2019.

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How did the market perform in the following years? The market's resilience over the past six years has indeed been remarkable, rewarding investors who maintained their long-term perspective despite several major events such as 2018-2019 Tariffs, 2020 Covid-19 Pandemic, and 2022 Interest Rate Hikes. The JPMorgan chart below shows that intra-year drawdowns are common but don't necessarily predict negative annual returns. In fact, these drawdowns can be viewed as healthy market corrections that prevent overheating and create buying opportunities for long-term investors.

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As we’ve said before, history has shown that it’s about time in the market, not timing the market. Long-term investors should focus on structural economic changes, such as increased domestic production and supply chain resilience.

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2. Federal Reserve Policy & Market Implications

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Interest Rates & Inflation Outlook

The Federal Reserve remains at the center of market discussions, as policymakers navigate inflation concerns and economic stability. Investors are watching closely for signs of a policy shift from restrictive to a more accommodative stance.

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Potential Policy Shifts & Market Adjustments

The current administration’s economic strategy includes:

• Cutting government employment & social programs – This could slow consumer demand in the short term.

• Reducing corporate taxes & deregulation – These measures aim to boost business investment but may take time to show results.

• Energy policy shifts – Increased domestic oil and gas production could help lower costs and support economic growth.

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Conclusion: Staying the Course Through Market Cycles

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Periods of uncertainty often create anxiety, but history has shown that investors who stay disciplined and focus on the long term are rewarded. While recent policy changes may create short-term challenges, they could also set the stage for stronger economic growth and investment opportunities over time.

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At GatePass Capital, we remain committed to helping our clients navigate market volatility with a steady, long-term approach. If you have any questions about how these developments impact your portfolio, we’re here to discuss your strategy and opportunities for the road ahead.

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Unless otherwise indicated, commentary on this site reflects the personal opinions, viewpoints and analyses of the author and should not be regarded as a description of services provided by GatePass Capital or its affiliates. The opinions expressed here are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual on any security or advisory service. It is only intended to provide education about the financial industry. The views reflected in the commentary are subject to change at any time without notice. While all information presented, including from independent sources, is believed to be accurate, we make no representation or warranty as to accuracy or completeness. We reserve the right to change any part of these materials without notice and assume no obligation to provide updates. Nothing on this site constitutes investment advice, performance data or a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Investing involves the risk of loss of some or all of an investment. Past performance is no guarantee of future results.

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