In the financial world, usually we say, “Don’t fight the Fed.” This means if the Central Bank of the US or the Bank of Canada wants to raise or lower interest rates to fight inflation or recession respectively – adjust your expectations accordingly! Stocks were up in 2020 and down in 2022 because the Central Banks deliberately stepped into the economy.
There is another adage applied by currency traders, that advises, “always bet against the government.” This means that when a government tries to prop up its currency artificially, the results are usually short-lived because global market forces are too big and relentless for any government to contravene for long.
In the context of the Trump Tariff regimen, both logics apply.
First, “Don’t fight the FED.” The impact on the US, Canadian, and most other economies will be negative. Central banks will likely lower rates to mitigate the effect – this will be good for bonds. There will be a short-term, one-time bump to inflation, but the net effect will be recessionary. This suggests strongly that Bond values will rise and mortgage rates will come down. Dividend paying stocks should hold up better than growth stocks in the short term.
Second, “Bet against the Government.” International trade agreements have been constantly evaluated and updated by smart people and market forces from the beginning of time. There are a million reasons why trade agreements are where they are. To change them suddenly and bluntly is follie and I believe will not stand. The limited effects of economic sanctions on other countries is another indication that the free market will adjust surprisingly fast. This means that the fall in stocks, all stocks, including US stocks, will likely be short lived and is probably a buying opportunity.
In summary, there is no better time to follow a balanced portfolio approach. Because your bond holdings will be going up a bit while stocks take a beating. The thing to do is rebalance your portfolio in the midst of turmoil to buy stocks low and sell bonds when they are high i.e. take advantage of the bargain prices. I believe variable rate mortgage holders will be getting steady relief too over the next 24 months.
The Rigden Model Portfolio is designed to take advantage of such times, by incorporating Bonds, Dividend Stocks, Hybrid funds and an Index Fund, all of which automatically rebalance between the cyclically high assets and cyclically low prices. Year-to-date April 2, 2025 The technology fund is down -7.81% but the total portfolio is up +.44%! Will the total portfolio likely still go down under the circumstances? Probably. But not by much, and not for long!
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