The Big One

The wait is finally over. President Trump’s “Liberation Day” has arrived, with investors braced for the tariff package he has dubbed “the big one.” The impact of these tariffs is uncertain, as is whether there is room for negotiation. One thing is clear however: Global commerce may never be the same.

In just the first three months of the year, the average tariff rate has increased from 2.4% to 6.6%. The political rumor mill on where it would end up has swung between two ends of a spectrum: targeted reciprocal tariffs or a broad universal tariff.

Either outcome (or a mix of each) would push the average tariff rate significantly higher, bringing the overall level to above 15%, and possibly even as high as 32%. Interestingly, investors have appeared more optimistic, with a recent Goldman Sachs Investment Research survey showing investor consensus expected a final tariff rate of 9.3%.

That could be because they had expectations for an underwhelming announcement or thought that countries would be able to secure exemptions through negotiation. But that consensus raises the risk that the market could be in for a negative surprise with higher tariffs.

Past, Present, Future

Of course, where markets go will depend on how the U.S. economy copes with the global trade upheaval. To state the obvious, this isn’t like your founding father’s economy when tariffs were the primary revenue generator for the government. Still, the past has some useful lessons for us.

Trade has always played an important role in economies, consistently accounting for a sizable chunk of GDP despite the occasional disruption. Yet as U.S. industries developed in the early history of the country, trade became relatively less important to the economy. With less need for protection from foreign countries, tariffs generally trended lower as well.

That changed when the Great Depression hit and the Smoot-Hawley tariffs were enacted in 1930, raising tariffs on thousands of goods to record levels. That led to boycotts and retaliatory measures from trading partners, which exacerbated the global recession. From 1929 to 1932, total goods traded fell 69% while GDP contracted by 43%. Rough to say the least.

While the current tariff push shares some similarities with the Smoot-Hawley era, they would be occurring in a completely different economic landscape. The biggest difference is that unlike in the early 1930s, today’s global economy isn’t already in the throes of a devastating recession. On the other hand, goods imports account for a much larger share of GDP today than they did in the past (over 11% now versus less than 3% then). Because of how interconnected today’s global supply chain is, inflationary effects from tariffs would likely spread more quickly than in the past.

Trust the Process

How this all shakes out is anyone’s guess. Is it just the mother of all negotiations? One big ploy to try and lower trade barriers with other nations? Maybe. Anything is possible, but it seems like the protectionist genie is out of the bottle. Putting it back in probably won’t be so easy.

When the Smoot-Hawley tariffs were enacted, it wasn’t until a change in government control after the 1934 elections that the Reciprocal Trade Agreements Act was passed and the import taxes began to be lowered.

Moments like this are an important reminder that investing is a long-term game. The market environment isn’t always positive, and stocks don’t only go up. It can be uncomfortable, and sometimes scary, to invest when the world is in turmoil, but part of what investing is about is being compensated for taking on risk. For years, high-flying tech stocks outperformed the broader market during a long period of U.S. dominance, but in times like this, the benefits of diversification become apparent, not only across sectors but regions and factors as well.

International markets are fresh off one of their best quarters relative to the U.S. in many years, while stocks seen as lower volatility and higher quality (i.e. less debt, higher profit margins, steady cash flows, etc.) trounced stocks with the opposite characteristics. It’s possible that this represents the beginning of a longer-term shift in market leadership as investors react to a changing world, but it will take years to know for sure. In the meantime, the most successful investors will likely be those who maintain discipline while strategically adjusting to realities.

Trust the process.

Want more insights from SoFi’s Investment Strategy team? The Important Part: Investing With Liz Thomas, a podcast from SoFi, takes listeners through today’s top-of-mind themes in investing and breaks them down into digestible and actionable pieces.

SoFi can’t guarantee future financial performance, and past performance is no indication of future success. This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.

Communication of SoFi Wealth LLC an SEC Registered Investment Adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at www.adviserinfo.sec.gov. Mario Ismailanji is a Registered Representative of SoFi Securities and Investment Advisor Representative of SoFi Wealth. Form ADV 2A is available at www.sofi.com/legal/adv.

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March delivered a stark illustration of evolving market dynamics. International markets dramatically outperformed their U.S. counterparts by one of the widest margins in history, as the Magnificent Seven stocks suffered their worst quarter since 2022. Federal Reserve officials downgraded their growth forecasts while expecting higher unemployment and inflation, and consumer confidence and deteriorating business surveys suggest economic headwinds are intensifying. Bond markets reflected the growing caution, with high yield credit spreads widening by the most in a single month since September 2022.

Macro

•   The Federal Reserve left the fed funds rate unchanged at a target range of 4.25%-4.50%, citing an uncertain outlook.

•   The Fed revised its quarterly economic projections to show lower growth (2.1% to 1.7%), higher inflation (2.5% to 2.7%), and higher unemployment (4.3% to 4.4%) in 2025.

•   Unemployment ticked up from 4.0% to 4.1% in February, below expectations.

•   Inflation reports were mostly cooler than expected, with the February Consumer and Producer Price indices coming in at 0.2% m/m (2.8% y/y) and 0.0% m/m (3.2% y/y), respectively.

•   March consumer confidence plunged to multi-year lows, according to data from both the University of Michigan and the Conference Board.

•   Regional Fed bank surveys of executives from manufacturing and service firms indicated the sharpest slowdown in economic activity since 2022.

Equities

•   The Magnificent Seven stocks returned -10.2% in March, bringing their quarterly return to -16.0%. Both period returns rank as the worst since 2022.

•   International markets’ beat the S&P 500 by 5.1 percentage points in March, one of the biggest outperformances in two decades.

•   For a second straight month, forward 12-month earnings expectations rose (+0.7%) while the forward P/E ratio contracted (-6.4%).

•   Cyclical stocks underperformed defensive stocks by 2.2 percentage points, the third straight month of underperformance.

Fixed Income

•   Short-term Treasury yields fell by 5-10 basis points in March, while longer-term yields were flat-to-up.

•   High Yield corporate bond spreads widened by 67 basis points, the most since September 2022, as tariff fears weigh on profit outlooks.

•   While inflation-adjusted 10-year yields ended the month where they began in the U.S., they increased by 13-25 basis points in international markets on increased government spending expectations.

Going International

The first quarter of 2025 presented a notable shift in global market dynamics, with international markets outperforming their U.S. counterparts in a departure from recent trends. This divergence can be attributed to several key factors, including heightened fiscal spending initiatives across European economies, and investors pricing in the impact of tariffs on consumer spending.

While this burst of outperformance has prompted some discussion about a possible regime shift in global market leadership, it’s important to maintain perspective. This quarter’s results occurred in the aftermath of a decade and a half of U.S. market dominance.

Of course, every trend begins somewhere. Before the United States’ recent dominance, emerging markets led during the 2000’s commodity supercycle, a period of surging commodity prices driven by China’s rapid development. Sustained leadership transitions often occur alongside big structural shifts that, while not immediately recognizable in the moment, are undeniable after the fact.

Are we on the precipice of such a transition? A potential restructuring of global trade certainly could qualify, but only time will tell if we’re witnessing the early days of a new market regime.

Uncertainty Hits the Fed

It’s early in the year, but “uncertainty” is in the pole position for word of the year in finance. Consumers and investors alike have become gripped by it, and the Federal Reserve is not immune. In their quarterly Summary of Economic Projections, Fed officials also included a qualitative assessment of how uncertain their projections are relative to the average of the last 20 years. What they said probably won’t surprise you.

After declining over the last year or two, officials’ assessments of uncertainty have spiked the most since the initial COVID-19 crisis. History suggests that the Fed is less likely to make interest rate adjustments when the direction of the economy is this unclear. Recent Fedspeak underscores this dynamic, with officials signaling no interest rate changes while the broader economic and regulatory environment remains in flux.

The central bank is stuck between a rock and a hard place. While a “wait-and-see” approach is understandable, it raises the odds that the Fed falls behind the curve if economic conditions deteriorate quickly. That could mean a continuation of the market volatility investors have already been dealing with, and possibly more sharp corrections if the risks of higher unemployment and inflation are realized.

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photo credit: iStock/MicroStockHub

Performance data quoted represents past performance. Past performance does not guarantee future results. Market returns will fluctuate, and current performance may be lower or higher than the standardized performance data quoted.

If you’re in the market for a house, it’s the time of year you’d normally get excited to start searching.

But between the price of real estate and the cost of borrowing, buying a home in 2025 is expensive. And the latest economic headwinds could wind up making a purchase feel even more out of reach.

So how can you adapt? One increasingly popular option is to house more family under the same roof.

A survey released this week by the National Association of Realtors shows 17% of homes purchased between June 2023 and June 2024 were for some combination of parents, grandparents, adult children and/or adult siblings. That’s up from 14% in each of the previous two years and the most since NAR started measuring in 2012.

While multi-generational living is hardly a new trend, it’s become steadily more common in recent decades. A big factor is the growth in racial and ethnic groups that are more apt to live in multi-generational houses, according to Pew Research.

But an increase in job losses and foreclosures during the Great Recession of 2007-2009 also accelerated the movement toward pooling financial resources.

Similar economic factors would appear to be at play now, with saving money being cited most often among the latest batch of multi-generational buyers surveyed by NAR, particularly Millennials.

In fact, 36% of buyers said they bought for “cost savings,” up from 22% in the previous 12 months. (In contrast, there was a slight decline in the percentage of buyers who attributed the purchase to caring for aging parents or because adult children or other relatives were moving back home.)

So what? Millennials had been the biggest contingent of homebuyers for years, but are now behind baby boomers. Without proceeds from the sale of a previous home to rely on, high rents, student loan debt and child care costs have made it difficult for many of them to come up with a down payment.

But thinking outside the box can help. There are still creative ways to adapt to this daunting housing market.

Related Reading

•   One Answer to High Mortgage Rates: A Smaller Home (SoFi)

•   Under One Roof: The Secrets to Success for Multi-Generational Living (Ikea)

•   Rent vs Buy Calculator (Trulia)

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