Tariff Turmoil Aftershock: Did Staying Invested Pay Off?

Remember last month's wild ride?

Massive volatility in global stock markets caused by the prospect of U.S imposed tariffs against all and sundry, culminating in Trump's liberation day on April 2nd. President Trump certainly shook things up, and we explored how to navigate that volatility (Tariff Turmoil and Stock Market Mayhem).

ONE MONTH ON. What's been happening in the stock markets since then? Let's dive into May and see how the S&P 500 has fared, and we'll also take a look at the Vanguard FTSE All-World (VWRP).

Diving Deeper into May's Dynamics

While the S&P 500 and Vanguard FTSE All World have shown an overall positive trend in May, the journey hasn't been a straight line. Several factors have contributed to the ongoing volatility:

• Trump’s Policies: As we have seen numerous times, President Trump is incredibly unpredictable and could change reality at any time with a twitch of a finger on ‘Truth Social’! We still don’t know if the tariffs are here to stay or will get even worse.

  
  

• Inflation Concerns: Lingering concerns about inflation caused by tariffs, amongst other things, and the potential for further interest rate hikes by the Federal Reserve continue to weigh on investor sentiment.

  
  

• Geopolitical Tensions: Global political events and ongoing tensions in various regions introduce uncertainty and impact market confidence. Any escalation in these situations often leads to market fluctuations.

Market Movements Post Liberation Day

Leading up to Liberation Day saw both the S&P500 and VWRP fall quite significantly. On Liberation Day itself, both indices fell even more - overall, both have shown increased volatility.

Since April 2nd, there have been many ups and downs, but significantly, both indices have recovered from this low point and are up from April 2nd.

Overall, the S&P 500 is up 2.5% on May 16th.

Let's take a look at how Vanguard FTSE All-World has performed:

• Current Price May 16: £109.85

• 1 Month: + 9.4%

• 3 Months: (- 5.0%)

• 1 Year: + 7.6%

• Since 20/1/2020: + 61.7%

As you can see, the fund is still down 5% in the 3 months since Trump's unpredictable government came into focus.

The £10,000 Question: Pulling Out Post-Liberation Day

Let's consider a hypothetical scenario: What if an investor, spooked by the initial market reaction, had pulled their investment out of Vanguard FTSE All-World three days after Liberation Day?

Let's base this on a portfolio valued at £10000 on liberation day:

• VWRP Price on April 2: £106.56 (93.84 units)

• VWRP Price on April 5: £96.22

• VWRP Price on May 16: £109.85

If an investor had pulled out on April 5th, they would have missed out on the recovery and subsequent gains in May.

If the investor pulled out on April 5th, their portfolio value would have been approximately £9,030.

If they had stayed invested until May 16th, their portfolio value would have been approximately £10,308.

The Difference: By pulling out on April 5th, the investor would have locked in a loss of £970. However, by staying invested, their portfolio would have grown to £10,308, representing a gain of £308 from the initial £10,000 investment.

This example highlights the potential cost of reacting impulsively to short-term market downturns. While it's natural to feel concerned during periods of volatility, a well-thought-out investment plan emphasises staying the course and focusing on long-term growth:

Time in the Market, Not Timing the Market!

Key Takeaways

• Volatility Continues: The market remains sensitive to policy changes and global events.

  
  

• Long-Term Perspective: Short-term reactions can lead to missed opportunities. A long-term investment strategy is crucial. Remember, this is just a snapshot of the market.

  
  

• Stay Informed: Keep an eye on market trends, have an investment plan, and adjust your portfolio accordingly. Avoid knee-jerk reactions.

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