How Tariffs Will Impact the Stock Market

Plus, what the Finance Forever portfolio looks like

Welcome to the first Finance Forever Friday! If you’re new here, my name is Mateo Rioja, writer of the Finance Forever newsletter. I’ve been heavily researching stocks, startups, and crypto for over five years now. I've gained quite a bit of knowledge since then, and have shared my insights with readers along the way. My goal is to share my opinions and knowledge about investment opportunities I come across with you, while building an investing community. Enjoy!

Starting with our market recap, the S&P, Dow Jones, and the Nasdaq have all headed lower over the past week from inflation and tariff fears. Bitcoin is also lower not only because of market conditions, but it was also left out of Trump’s list of cryptos to be included in the supposed reserve. Tesla has also plunged over the past few weeks on its ties to the Trump Administration which have begun to negatively impact sales. Not to mention, tariffs will negatively affect profit margins and sales.

Today’s article is a look into these proposed tariffs by President Trump and how they will affect the market. Plus, how this new market will affect the Finance Forever Portfolio. During shaky financial times, I’m sure a lot of you are wondering what to expect from these upcoming trade wars. Well, today, I’ll tell you what I believe will happen, and what my take on the markets is. Here’s a breakdown of today’s article:

🪖What is a trade war?

💸Predictions for the U.S. economy

💼Finance Forever portfolio updates

👋Closing words & updates

⚠️Please remember, this article is not financial advice in any way. Do your own research or consult your financial advisor before investing in anything based on the predictions made in this issue.

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Now, today’s article.

Tariffs 101

Before we start, let’s get into some important terms for today’s article:

Tariff - A tax on an imported or exported good, usually on the former. Tariffs are put in place by governments, typically to slow down trade of that good, while also increasing domestic production.

Trade war - A trade war is when two countries go back and forth with tariffs in response to each other. Markets are down a lot recently due to fears of trade wars. One example of these that many people are familiar with is the recent conflict between China and the United States which began in 2018 but was ultimately considered a failure.

Trade deficit - When the value of a country’s imports exceeds that of its exports.

What’s the big deal? On Tuesday morning, President Trump enacted 25% tariffs on all goods from Mexico and Canada, although he has partially walked it back for some goods since. Additionally, he added 10% tariffs to all Chinese goods on top of the existing ones. These three countries combined account for 42% of total U.S. imports in 2024, per CNBC, and are a big reason why we are in a trade deficit. Trump’s goal is for the tariffs to reduce reliance on foreign countries and instead focus on domestic production. But, what are the implications?

• Higher costs - The increased costs which are a result of tariffs will be passed on to consumers. Avocados from Mexico, clothes from China, lumber from Canada, and many more goods will all be more expensive.

• Slows economic growth - Tariffs reduce foreign trade and investment. Foreign investment and trade are necessary for countries to grow at a fast rate as oppose to a slower rate under more domestic policy, which has been historically proven. For example, prior to 1991, India was a highly domestic economy, averaging only around 3-4% growth a year, known as the “Hindu rate of growth.” However, after 1991, a period of economic liberalization began and India now averages consistent economic growth of 7% a year. If relationships with other countries are sour, you are less likely to grow as much as you could be.

• Political tensions - The U.S. is adding tariffs on top of an already strained relationship with China. After all, a government statement from China on Tuesday said, "If war is what the US wants, be it a tariff war, a trade war or any other type of war, we're ready to fight till the end." Moreover, the U.S. is also creating tension between a longtime North American alliance, which could have negative economic and political implications over the next few months.

Bottom line - There are many more effects besides those listed, but these trade wars will certainly create economic pains.

Predictions for the U.S. Economy

What history says: The S&P and Dow Jones are both down around 5% from all time highs, while the Nasdaq is down around 9%. Goldman Sachs has said, "We find that 5% pullbacks have historically been good entry points, as the index has gone on to provide a median 6% return over the subsequent three months, with positive returns in 84% of episodes." Yes, volatility is expected in the stock market, and 5% drops are fairly common, but I believe this one is different.

The current situation: With certain indexes now in correction in territory, there’s no denying that tariffs are negatively affecting the markets. However, I believe their is further downside. In the first 12 months after tariffs, markets typically go down anywhere from 5-20%, implying there is only one direction from here.

What I predict: The president, in my opinion, seems very set on these tariffs and focusing on domestic production. I believe that the stock market is perfectly set to enter a bear market and will continue the downwards trend over the next few months. Personally, I think we will see the S&P at least touch the mid $5,200s, and potentially could go much lower depending on how bad the tariffs end up being. Long term, I think this could be the start of a shift away from the U.S. being the core of financial markets worldwide.

Updates on the Finance Forever Portfolio

By now, you know my stance on these tariffs and how they will affect the markets. But how does it affect the FF portfolio?

Reducing risk - We have began reducing portfolio of high-risk stocks such as FOUR 0.00%↑, NBIS 0.00%↑, SOUN 0.00%↑, and more. This is because their returns are highly subject to macroeconomic factors such as inflation, tariffs, and investment.

Consumer staples - The portfolio will additionally contain more consumer staples soon as we gear up for what I believe will be a bear market. This includes companies related to food, gas, and household necessities. I have a article on my top picks for a bear market coming soon.

Increased cash position - I am currently holding much more cash on the sidelines and am ready to buy when I see that a great stock has reached a fair/oversold price. For example, stocks that we have alerted readers about are now trading at great discounts compared to their price just a few weeks ago (Nebius, Nubank, etc.). If you want to get alerted for when a stock gets added to our portfolio, I am working on building a website to track the Finance Forever portfolio.

Final take - I believe that these tariffs will negatively affect the economy at least over the next 12 months. I also could see these upcoming trade wars being much more harmful than the ones during President Trump’s first term as these are much more serious. Not to mention, both sides seemed determined to fight until they get what they want. For now, I am switching to a much lower risk portfolio than what I had before, and I am ready to load up at great discounts. As Warren Buffet once said “Be fearful when others are greedy and greedy when others are fearful.”

Well, that wraps up our article for this week. Did you enjoy today’s issue? Let me know in the comments, and don’t forget to leave a like to help this reach more people.

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That’s it for today, see you next week, and keep investing!