Stop buying (and sell) US stocks before tariff shock?

[LennStar]

Do you guys think it might make sense to sell US stocks + indeces before the tariffs (which, if enacted will likely disrupt the economy a lot) of Trump are in place? And buy back a year later?

The problem is of course that this would include all the "world" stuff not just the pure US based ETFs.

Or do you think that as long as it's not small cap, the companies are so international that it won't do much difference?

[Omy]

So...top is in?

[Radagast]

US companies which don't rely on imports or exports of physical goods will be little or unaffected or may even have the opportunity to improve profit margins.

In general my advice is that US persons should limit US stocks to 50% or less of their portfolio after they've been investing for more a few years (except when limited by retirement plan options), and ideally of that half would be small cap, mid cap, or extended market funds. For international investors I'd suggest keeping US stocks to 25% or less of their portfolio. US stocks have been on a roll recently, so it's probably a good time to rebalance if you haven't done so in the past year or two regardless of tariffs or other specific concerns.

[ChpBstrd]

I thought first-day tariffs were the obvious outcome after hearing Trump talk about them, but then I ran across the following source:

https://www.politico.com/news/2024/12/03/lighthizer-trump-second-term-no-return-00192417

Robert Lighthizer, the former U.S. trade chief, is unlikely to rejoin the Trump administration in an official capacity, say five people with knowledge of his plans and personnel conversations within the presidential transition.

It is a bitter blow to protectionists and a sign of the fluidity in Trump’s political camp that someone as respected and trusted as Lighthizer could be cast aside.
......
That’s a significant loss for those who support more protectionist policies, which Lighthizer successfully implemented in Trump’s first term, overcoming opposition from more business-friendly, anti-tariff Cabinet secretaries and advisers. His exclusion from Trump’s Cabinet this time around gives the voices from Wall Street in the White House a much stronger hand in the incoming administration. And it throws into doubt the president-elect’s promises to pursue an even more aggressive second term trade policy, including a universal tariff of up to 20 percent on all imports and tariffs at least three times as high on Chinese goods.
......
If confirmed next year, some of the top economic posts in the Trump administration will be filled by prominent Wall Street figures — including Treasury Secretary pick Scott Bessent and Commerce Secretary selection Howard Lutnick. Kevin Hassett, Trump’s pick to lead the National Economic Council, also hails from the establishment, business-friendly wing of the GOP. Though those figures have expressed support for raising tariffs, they have a more limited view of how they should be used.
Trump praises Xi but warns China could face heavy tariffs if elected

Bessent has talked about using tariffs “strategically” on certain products — as opposed to across-the-board duties — and both he and Lutnick, whom Trump has said will lead his trade agenda, have spoken about tariffs as a cudgel to force other nations to accede to Trump’s demands, whether on trade or other topics like jobs and migration. Trump has followed that playbook in recent days, threatening eye-watering duties on top trading partners including Canada, Mexico and China, as well as on a bloc of major developing economies that includes Russia, Brazil and India. That’s in contrast to Lighthizer’s view of tariffs as a long-term solution for rebalancing the United States’ widening trade deficit and re-shoring manufacturing.

So maybe we get 6-12 months of tariffs followed by a symbolic deal on immigration and dumping of particular products? IDK, but let's keep in mind that Trump will never run for re-election again, one way or another, so there is no incentive to keep the promises he was elected on. Better to "keep your enemies close" and pit the factions against each other so they fight each other instead of you.

Of course, ask again in 6 months, when perhaps the tariffs-for-realignment faction could come into more favor than the tariffs-as-negotiation-tool faction.   

[LD_TAndK]

Nobody knows nothin

I wouldn't make any investment decisions based on campaign promises that may or may not be kept, whose implementation could look wildly different than you expect, and whose economic ramifications are not predictable. Stay the course.

[theoverlook]

I disagree with pretty much everything about the incoming administration, but I also know that what you're describing is a form of market timing. None of us know what the market is going to do. If you sell now you might not ever get a chance to buy back in lower, or you might allllmost cover your tax losses, or you might make out like a bandit when the market tanks 50% then recovers under the next administration. But we just don't know, and the riskiest move is to jump in and out of the market, so it makes the most sense to keep buying on a schedule. If you're not buying any more, and are retired, look into your asset allocation and see if you want to adjust that.

[Retire-Canada]

My portfolio is setup to roll along for decades without needing a major course change so what happens in 2025 when Trump takes office isn't going to have me doing anything unusual. Firstly nobody knows what he will do and nobody knows what the full impacts will be.

If you are in the accumulation phase and want something you can do then find more ways to cut costs and bump up that savings rate. Whatever ends up happening having a lower annual spend and more savings will be a positive move.

[bacchi]

I'll be selling some equities at the end of this month but only because the gains hit my rebalance level.

If I was still accumulating? I'd be doing what Retire-Canada suggested ^^.

[MustacheAndaHalf]

Nobody knows nothin

I wouldn't make any investment decisions based on campaign promises that may or may not be kept, ...

... Trump ... . Firstly nobody knows what he will do and nobody knows what the full impacts will be.

"Tariff" is Trump's "favorite word", as he's said repeatedly.  It is central to getting what he wants.  Trump enacted tariffs during his first term, and has repeatedly said he will enact tariffs in his second term.  If someone looks at all that and thinks we have no idea what will happen... I'd really like to bet them on that.  Trump will enact tariffs.

[Retire-Canada]

Trump will enact tariffs.

What tariffs? How high and for how long? What that means for any specific country or product is not known.

If you know feel free to post your predictions in detail and we'll circle back and see how close you were.

[AnotherEngineer]

The market modestly rose following Trump's re-election. While my faith in the collective wisdom of millions of profit-seeking, fear- and greed-driven individuals has its limits, there doesn't seem to be a lot of fear in the marketplace that tariffs will collapse the economy.

[MustacheAndaHalf]

Trump will enact tariffs.

What tariffs? How high and for how long? What that means for any specific country or product is not known.

If you know feel free to post your predictions in detail and we'll circle back and see how close you were.

I agree we don't know the duration of the tariffs, but that isn't what you said.  Since you deleted it from your reply, the post below is what I quoted, and what I said.

... Trump ... . Firstly nobody knows what he will do and nobody knows what the full impacts will be.

"Tariff" is Trump's "favorite word", as he's said repeatedly.  It is central to getting what he wants.  Trump enacted tariffs during his first term, and has repeatedly said he will enact tariffs in his second term.  If someone looks at all that and thinks we have no idea what will happen... I'd really like to bet them on that.  Trump will enact tariffs.

You said "nobody knows what he will do", and I replied "Trump will enact tariffs".  You did not admit tariffs will occur, nor did you say anything about duration or size of tariffs.  Notice my entire post is about what he will do, not the duration or amount.

Do you agree Trump will enact tariffs?  Because if you do, "nobody knows what he will do" doesn't seem accurate to me.

[Morpheus]

Trump will enact tariffs.

What tariffs? How high and for how long? What that means for any specific country or product is not known.

If you know feel free to post your predictions in detail and we'll circle back and see how close you were.

I agree we don't know the duration of the tariffs, but that isn't what you said.  Since you deleted it from your reply, the post below is what I quoted, and what I said.

... Trump ... . Firstly nobody knows what he will do and nobody knows what the full impacts will be.

"Tariff" is Trump's "favorite word", as he's said repeatedly.  It is central to getting what he wants.  Trump enacted tariffs during his first term, and has repeatedly said he will enact tariffs in his second term.  If someone looks at all that and thinks we have no idea what will happen... I'd really like to bet them on that.  Trump will enact tariffs.

You said "nobody knows what he will do", and I replied "Trump will enact tariffs".  You did not admit tariffs will occur, nor did you say anything about duration or size of tariffs.  Notice my entire post is about what he will do, not the duration or amount.

Do you agree Trump will enact tariffs?  Because if you do, "nobody knows what he will do" doesn't seem accurate to me.

If we're being pedantic and following strict axioms, I would say - no. we do not know what Trump will do on tariffs despite knowing that on his first term, he promised to enact them and "delivered". The fact that he said he would do it, and did it in the past does not guarantee (="Trump will enact tariffs") that the same will happen in the future. It may make it more likely (and even that is debatable) but far from certain.

But all of that is beside the point, IMO.  S&P500 had a fantastic performance during his first term, inflation stayed low as well as unemployment. And all of that despite the tariffs. If there's such a clear-cut correlation between enacting tariffs and poor stock performance/crashing economy - how come this happened?

[Retire-Canada]

You said "nobody knows what he will do", and I replied "Trump will enact tariffs".  You did not admit tariffs will occur, nor did you say anything about duration or size of tariffs.  Notice my entire post is about what he will do, not the duration or amount.

Do you agree Trump will enact tariffs?  Because if you do, "nobody knows what he will do" doesn't seem accurate to me.

What tariffs? If you are not able to predict the specifics in any meaningful way then it's not actionable.

Last go round Trump went on and on and on about THE WALL. Did he build some new wall at the border? Yes. Was it meaningful in terms of new border wall vs. what was there previously? No. Did Mexico or Canada pay for any wall construction? No. So some MAGAhead could argue he followed through on the campaign promise. Any reasonable person would say it was all a lot of talk to get the base stirred up to vote.

[Rubyvroom]

I'm less worried about tariffs impacting earnings because I believe companies will generally pass the cost along to consumers.

I'm more worried about the economic impact of potential "austerity measures" but can't justify changing my IPS because I have no actual facts/data to assess. I have no idea what will actually happen vs. what may simply be posturing.

I run 90/10 in my portfolio with a +/-5 acceptable swing. Right now it's closer to 93/7 due to gains. I will definitely rebalance to 90/10. If I want to "feel better" I may go wild and rebalance to 87/13, which is still within my IPS.

Note that I am not in the accumulation phase. I'm still in my first five years of FIRE, so I'm more sensitive to swings. If I were in the accumulation phase I would not really be thinking about this at all - money goes in no matter what and buying another dip would be great. I think the biggest change I'm considering is part time work so I have some extra cash to invest and/or pad withdrawals.

[MustacheAndaHalf]

...

"Tariff" is Trump's "favorite word", as he's said repeatedly.  It is central to getting what he wants.  Trump enacted tariffs during his first term, and has repeatedly said he will enact tariffs in his second term.  If someone looks at all that and thinks we have no idea what will happen... I'd really like to bet them on that.  Trump will enact tariffs.

...
If we're being pedantic and following strict axioms, I would say - no. we do not know what Trump will do on tariffs despite knowing that on his first term, he promised to enact them and "delivered". The fact that he said he would do it, and did it in the past does not guarantee (="Trump will enact tariffs") that the same will happen in the future. It may make it more likely (and even that is debatable) but far from certain.

It appears to be more constructive to shift away from a debate over wording.

I stripped away some context and left my first reply.  Your comment focuses solely on what Trump did in "his first term", but I also mentioned 2024 campaign promises.  To elaborate, Trump has called tariffs his "favorite word" repeatedly just before the election.  Recently, and this is after he was elected, he mentioned 25% tariffs on Canada and Mexico.  He has selected cabinet secretaries for his administration who favor tariffs.  Perhaps we see different news feeds, but Trump's cabinet picks and tariffs are the main topics I see in the news about him.  But perhaps as Retire-Canada brought up, tariffs only matter if their impact can be predicted.

But all of that is beside the point, IMO.  S&P500 had a fantastic performance during his first term, inflation stayed low as well as unemployment. And all of that despite the tariffs. If there's such a clear-cut correlation between enacting tariffs and poor stock performance/crashing economy - how come this happened?

You claim the S&P 500 had "fantastic performance during his first term", followed by "all of that despite tariffs".  Perhaps I'm misreading this, but that didn't happen.  Trump didn't enact tariffs for all 4 years of his first term.  I wouldn't count 2017 stock market performance "despite the tariffs" when he hadn't enacted tariffs yet.

[MustacheAndaHalf]

You said "nobody knows what he will do", and I replied "Trump will enact tariffs".  You did not admit tariffs will occur, nor did you say anything about duration or size of tariffs.  Notice my entire post is about what he will do, not the duration or amount.

Do you agree Trump will enact tariffs?  Because if you do, "nobody knows what he will do" doesn't seem accurate to me.

What tariffs? If you are not able to predict the specifics in any meaningful way then it's not actionable.

Last go round Trump went on and on and on about THE WALL. Did he build some new wall at the border? Yes. Was it meaningful in terms of new border wall vs. what was there previously? No. Did Mexico or Canada pay for any wall construction? No. So some MAGAhead could argue he followed through on the campaign promise. Any reasonable person would say it was all a lot of talk to get the base stirred up to vote.

I think it will be more constructive if I stop being pedantic and arguing about what "will do" means.  I agree, if we can't make actional predictions about tariffs, there isn't an investment thesis to be made.

Trump's claim that "Mexico will pay for it" was humorous.  Mexico did not allocate any money for the border wall.  What Trump doesn't know would fill an encyclopedia, but what matters is what he believes.  He has said other countries pay tariffs, which is false.  But what matters is that Trump could have seen tariffs on Mexico as paying for the wall (not true, but his view, I think).

This time around, Trump has said he will impose 25% tariffs on Mexico (and Canada, sorry!).  He has said Mexico must stop illegal immigration and the fentanyl crisis.  I am very skeptical that will happen, but I don't think Trump is detail oriented.  He could get offered a deal that looks great, and then doesn't work in practice, but still end the tariffs.  Back in 2019, Trump threatened to increase tariffs until they hit 25%, and Mexico struck a deal.  Tariffs starting at 25% is more severe, but that could mean greater efforts to strike a deal sooner.

"Trump backs off tariff threat, says Mexico will help stem tide of Central American migrants headed for the U.S."
https://www.texastribune.org/2019/06/07/trump-tariff-threat-dropped-mexico-stem-tide-central-american-migrants/

[achvfi]

I don't think you should be doing all or nothing. My approach is to Diversify equity portfolio allocation by size/globally and take some chips off the table .i.e bonds and cash. Remember cash and bonds yields are decent now vs 0% interest rate era we had before.

Last time trump was president uncertainty he created was such a boon to long term investors. If you were investing regularly or had  some dry powder, you had opportunity take advantage of uncertainty.

During last Trump presidency we had Trade wars, tariffs, bad pandemic handling and constant crazy talk helped keep asset prices lower and gave us some fantastic buying opportunities.

[Fru-Gal]

Also, the economy is not the stock market. So it’s possible that his actions could hurt the economy, even while the stock market goes through the roof.

I’m thinking based on the experience of his last term that we are likely to see new stock market records based on tax cuts to corporations and stock buybacks. However, the supposed enthusiasm of the market we’ve seen since he was elected could also a bit of delirium before a rug pull right around January 20.

I know one thing, a number of people in my circle completely exited the stock market with the first Trump term and that turned out to not be a good choice.

[ChpBstrd]

I think we'd benefit from organizing our thoughts, and talking about specific scenarios with labels.

Scenarios:

1. Widespread/high tariffs as announced
     1.a.     Stocks go up despite tariffs
     1.b.     Stocks go down

2. No tariffs or very short/small/targeted tariffs
     2.a.     Stocks go up despite tariffs
     2.b.     Stocks go down

What's not really up for debate among economists or informed people is the consensus that tariffs are a tax on consumption that create deadweight losses and discourage some consumption of the things taxed at the margin. Decades of experience have taught us that tariffs reduce trade, GDP, and living standards.

For example, G.W. Bush's steel tariffs between March 5, 2002 and December 4, 2003 coincided with a -7.59% move in the S&P500's price.

That said, all 4 outcomes are still possible. Assign probabilities to them if you like. I'd suggest scenarios 2.b. and 2.a. occurred during Trump 1.0, as the damage of targeted tariffs between 2018 and 2019 was absorbed by fast economic growth elsewhere. However, rising CPI during that time briefly supported the Fed's ambitions to raise rates above 2%.

S&P500 total returns during tariff years of 2018-2019:
2018: -4.38%
2019: +31.49%

Did Trump's trade war cause the negative return in 2018? Did partial relief of tariffs in exchange for trade deals in mid-May 2019, or hope of tariff relief starting in January 2019, cause the sharp rebound in 2019? These questions are the questions up for debate.

I do not think it is wise to assign a 0% chance to any of the four outcomes, but I will agree that the addition of the tariffs factor increases the odds of a negative stock return.

[Scandium]

Confused why you're asking this question now. If it's "certain" that trump will enact tariffs, and that US stock will then go down, they would already have done so! Why do people forget that the stock market looks forward, and assume that something in the "certain" in future will change the market from where it is now? But only at some later time, and they can take advantage of it? Do you think you're the only one who noticed that trump won, and that he wants to do tariffs? The only way this would work is if you did this before his election.

[ChpBstrd]

Confused why you're asking this question now. If it's "certain" that trump will enact tariffs, and that US stock will then go down, they would already have done so! Why do people forget that the stock market looks forward, and assume that something in the "certain" in future will change the market from where it is now? Do you think you're the only one who noticed that trump won, and that he wants to do tariffs? The only way this would work is if you did this before his election.

In the fall of 2021, it became clearer that the Federal Reserve would raise rates, probably by March 2022. Core PCE was 4.04% in September, 4.67% in October, and 4.94% in November. Past outbreaks of inflation had always been extinguished only after the Federal Funds Rate had exceeded the peak of the inflationary cycle, and so a large rate hiking campaign was imminent. Yet stocks and bonds continued to rally from October to December 2021, seemingly oblivious to the implications to discounted cash flows when the FFR goes from a 0 to 0.25% range to levels consistent with controlling a CPI that already exceeded 7% in December.

For future reference, a 5.24% Core PCE plus a 0.25% upper boundary Federal Funds Rate means sell stocks! However, the bull market was charging upward and everyone wanted to squeeze one more month out. People sold in January, as soon as they could lock the gains into the 2022 tax year.

So yes, markets can lag any reasonable reading of current events, and discount fast-approaching risks. We saw it happen just 3 years ago.