All That Matters: What’s New, What Isn’t

What’s New 

Mike: It’s March 2025, and the stock market has been going through a fair amount of volatility. Ross and I have been asking ourselves – is this time different? There’s a lot going on in the world right now and a lot of it is new, but there’s also a lot that isn’t. So, what’s new? First, a new administration came into power, adopting a significantly different approach to trade policy and global alliances. A central theme of this administration has been an increasing use of tariffs – the potential economic impact of which has unsettled the market.

Ross: I think that’s the primary cause of this volatility, but there are other contributing factors. First, the level and breadth of these tariffs. President Trump expanded the use of tariffs during his first term – but not nearly to the extent he has today. Investors worry that these higher tariffs could hinder economic growth. The second factor is uncertainty. Many details of the current policy proposals are unknown and seem to be changing every week. Companies are talking about how to adapt – but it’s hard to fully prepare without knowing the rules of the game. Finally, the fact that this administration may no longer view the economy and stock market as a barometer of its success has led to the uncertainty we’re seeing today. Some policymakers may seemingly be okay with economic weakness in pursuit of their broader policy goals. This upends a lot of investors’ frameworks about how to view what’s happening in Washington.

Mike: One of the things you mentioned was uncertainty. I’ve always said the stock market doesn’t hate uncertainty; it hates surprises. Without uncertainty, investors wouldn’t see returns. But surprises, like these ever-shifting tariff announcements, make it harder to keep up. Another factor impacting the current volatility is the relentless flood of news. With new headlines emerging every hour, it can be exhausting to discern what’s truly important.

Ross: We can’t take for granted how much the consumption of news has increased in the last five years, both online and via social media. This constant overload of information makes the August selloff feel like it happened a decade ago. Staying informed as an investor is great but be mindful of the weight of overconsumption over time.

What Isn’t

Mike: We’ve talked about what’s new. Let’s talk about what isn’t – selloffs. Ross and I are evidence-based investors; we look back at history to see what generally happens and use that to inform the conversations we have with clients. So how often do selloffs occur? Typically, you get three 5% selloffs and one 10% selloff every year.

Ross: Selloffs and volatility are the toll we pay for access to the market’s long-term gains. Like you said earlier, without uncertainty, the market wouldn’t have compounded at 10, 11% a year for the last century. If someone promised you those kinds of returns with no downside volatility, that would be a scam. So, selloffs are the price we pay. It doesn’t make them easier to stomach, though. Remember that every past selloff came to an end. Every bear market, every 10% correction, every little blip has ended. We hit a new all-time high in the stock market just a couple of weeks ago. It’s important keep it all in perspective.

Mike: Selloffs will always occur, but the reasons change. Five years ago, we were faced with an unprecedented COVID-19 pandemic. Now it’s tariffs and a new administration. A couple of years ago, it was inflation and interest rates. There’s always a reason and that’s not new.

Ross: On the five-year anniversary of COVID, it’s apt to reflect on what we learned through that uncertainty. About five years ago to the day, we had the most volatile calendar week in market history. In 2020, there were three days in a single week – March 9^th, 12^th, and 16^th – that the market fell 8% or more. These days were three of the worst in the Dow’s 130-year history. But just like any bear market, it ended, and it ended quickly. The market bottomed on March 23^rd, 2020, well before a stimulus bill, before the creation of a vaccine, before unemployment peaked. It then went on to more than double by the end of 2021. Selloffs end. If you get out at the wrong moment, it’s hard to get back in and reap the gains of the recovery. That isn’t new.

Your Behavior is Crucial

Mike: No matter what happens or when this selloff ends, your investing behavior is crucial. What you do when the stock market is going up is practice. What you do when the stock market goes down is the Super Bowl. Your behavior matters the most in down markets. We know all selloffs are painful – but they end. Markets are very powerful entities. If the market is down and people are feeling the effects, policymakers will pay attention. In December of 2018, as trade tensions brewed between China and the U.S., the Federal Reserve switched from a hawkish to a dovish stance. Policymakers eventually have to respond.

Ross: 2018 is a great comparison to what we’re experiencing now. We were in the middle of a trade war, the market was selling off, and the Fed kept interest rates higher than the market was comfortable with. Ultimately, this resulted in a policy pivot from the Fed. In 2020, Covid stimulus bills ultimately convinced investors things would get better. Policymakers need to please their constituents to get reelected – there’s always a breaking point.

Mike: I want to end with this quote from Kahlil Gibran: “Our anxiety does not come from thinking about the future, but from wanting to control it.” Remember that no one knows what the future holds. As an investor, trying to control an uncertain future will almost always result in failure. Would you jump out of a lifeboat in choppy water? At Baird, your financial plan and investment strategy is built to be your lifeboat, and your Baird Financial Advisor is here to help you navigate this choppy water.