Mark on the Markets
March 2025

Tariffs & Economic Uncertainty

Following the election, optimism surged amid the belief that the new president would follow through with plans to pare back regulations that stifle businesses and extend the tax cuts passed in 2017.

From an investor's perspective, so far, so good.

But candidate Donald Trump also pledged that he would enact tariffs on countries he believed were not playing fairly with U.S. manufacturers and U.S. exporters. The 47th president has been in office for just over one month, and he’s wasted little time on the tariff front.

President Trump is certainly not the first president to use tariffs. Alexander Hamilton, the first Treasury Secretary and a key architect of the early American financial system, successfully proposed and implemented a tariff system with two primary objectives: to generate revenue for the fledgling U.S. government and to shield emerging American businesses from competition with well-established foreign companies. Notably, the second bill signed into law by President George Washington was a comprehensive tariff act.

Donald Trump’s tariff proposals clearly reflect protectionist tendencies, which run counter to the principles of free trade. However, he has also put forward aggressive tariff measures aimed at shaping the policies of other nations, including those related to immigration control and as a response to unfair trade practices.

Tariffs are not a direct tax on American consumers but rather a government-imposed cost of doing business with foreign producers. They are paid by the importer—usually an American company—rather than the foreign producer. If tariffs reach extreme levels, importers may stop bringing in certain products altogether due to high costs.

When foreign products are no longer imported, consumer demand shifts to domestic alternatives. In the short term, this can drive prices up. While tariffs are not a direct tax, they do have economic consequences. Over time, as American producers expand their output to meet demand, prices may stabilize, and new jobs could be created.

So Why Are Investors Concerned?

Sweeping tariffs have the potential to affect the broader U.S. economy.

1. Tariffs on imported goods will raise prices at home if the importer or retailer doesn’t absorb the new tax. The significant increase in levies on Canadian, Mexican, and Chinese goods strongly suggests they cannot be fully absorbed, which would lead to higher prices. According to the U.S. Census, these three nations are the top providers of goods imported into the United States ($1.4 trillion last year).
   
   
2. Barriers erected by the U.S. will likely be met by higher barriers for U.S. exporters as countries retaliate. That may restrain production among U.S. manufacturers. 
   
   
3. Investors are also worried that countermeasures could lead to a rapid escalation of any trade war.
   
   
4. Finally, tariffs introduce uncertainty into the economic narrative, which may undermine business and consumer confidence. In turn, businesses may reduce spending until the dust settles.

Are There Factors That Mitigate Tariffs?

Yes, and here’s what we see…

1. The U.S. economy is relatively closed, with total trade (imports and exports) accounting for only about 25% of GDP—a notably low figure. In contrast, key trading partners such as China (37%), Canada (67%), Mexico (73%), and the European Union (96%) have much higher trade-to-GDP ratios. This limited trade exposure helps shield the U.S. economy from the impact of trade disruptions compared to other major global economies, while also providing significant leverage in trade negotiations.
   
   
2. Historically, American businesses have demonstrated a strong ability to adjust to disruptions. Research indicates that tariffs enacted during Donald Trump’s first term as president, companies mitigated a considerable portion of the impact by shifting supply chains, sourcing alternative inputs, and adjusting prices on untaxed goods. While broader tariffs would present greater challenges, the resilience and adaptability of U.S. businesses should not be underestimated.
   
   
3. Although tariffs have dominated discussions, other economic policies from the new administration could support growth. These include extending the Tax Cuts and Jobs Act, potentially introducing further tax reductions, and easing regulatory burdens across industries. While the exact outcomes remain uncertain, these measures could help offset some of the potential negative effects on GDP growth.

We’re also aware of the psychology of corporate media outlets amplifying opinions on extremes. And for good reasons: fear sells. In the short term, markets can be influenced by the news. But in the long-term, markets are driven by fundamentals – earnings, interest rates, and pro-business policies. We believe in investing in the best companies that create value for shareholders and create value for others.

What to Look For…

Publicly traded stocks have already experienced significant volatility, and for good reason—the U.S. public equity market is far more exposed to trade than the broader economy and remains highly valued.

While exports account for only about 11% of U.S. GDP, the S&P 500 derives 34% of its revenue from international markets, and the Nasdaq 100 relies on overseas sales for roughly half its revenue. As we've noted, the stock market and the broader economy are not the same. While this disconnect has benefited equities over the past 15 years, it now presents challenges.

At a price-to-earnings (P/E) ratio of 21x–22x, stocks are priced for near-perfect economic conditions. While the outlook may not be disastrous, it is far from ideal. With little margin for error factored into valuations, the risk to U.S. equities remains significant.

Meanwhile, various economic reports suggest that U.S. economic growth may be slowing down. However, we also recognize that economic data can fluctuate from month to month, and one month does not establish a trend.

Bottom Line…

Tariffs will create disparities in performance across industries, companies, and investments. Success will depend on competence, innovation, and strategic investment choices. While tariffs pose challenges, they also create opportunities for us to help our clients generate returns through informed decision-making and adaptability.

Mark on the Charts

This month we’ll look at the S&P 500 Equal Weighted Index.  As the definition states, the equal weighting applies the same percentage across all 500 stocks. This eliminates the bias I discussed in last month’s newsletter where almost 30% of the index is concentrated in 7 to 10 stocks.

We clearly see a change in market direction in December, a small recovery in January, and a gradual slide downward in February. While I will not give you “eye glaze over” and discuss the technical indicator on the bottom of the chart, each has turned over and confirms the movement. As I pen this newsletter, the trendline (blue dotted line) has been broken. This will either be a buying opportunity on a dip, or a further correction. We remain in a secular bull market, and I will be looking for evidence to confirm either case and adjust portfolios based on the evidence.

Timely Tax Tidbits

Retirement accounts provide numerous benefits for tax deferred or tax-free growth.

An IRA, or Individual Retirement Account, is intended to assist you in saving for retirement.

As the name implies, the account is for an individual. It cannot be held jointly with your spouse or another person.

An IRA offers significant advantages, including:

Tax advantages include tax-free growth on Roth IRA accounts and tax-deferred growth on traditional IRAs. You may also be able to deduct contributions on traditional IRAs.

IRA accounts offer a wide array of investment options, which include stocks, bonds, mutual funds, exchange-traded funds, money markets, and CDs.

You have plenty of flexibility to develop a strategy to help you achieve your retirement goals.

Tax-deferred accounts allow you to take full advantage of compounded growth over a long period of time.

IRA accounts provide you with financial support in retirement that goes above what you will receive from a pension or Social Security.

Although various rules and account types offer flexibility and choices that cater to your needs, they also introduce complexity.

Before we go on, our review provides insights into different retirement accounts, but it is not all-encompassing. If you have additional questions, please feel free to reach out to one of our team members, or you may consult with your tax advisor with specific tax questions.

That said, let’s review the:

Traditional IRA

The Roth IRA

And the SEP-IRA.

Traditional IRAs

• Contributions may be tax deductible.
• Funds in the account grow tax-deferred.
• Withdrawals after 59½ years old are taxed as ordinary income.
• Withdrawals prior to 59½ may be subject to a 10% penalty, and
• Required minimum distributions (RMDs) begin at age 73.

Contributions

Beginning in 2024, the IRA contribution limit increased by $500 to $7,000; the annual limit is $8,000 if you are 50 years of age or older. These limits remain in effect for 2025.

The total contributions for all your IRAs (Roth and traditional) max out at the prescribed limits or your earned income, whichever is lower.

However, a non-working spouse may contribute to a spousal IRA as long as the other spouse is working and you file a joint tax return.

There is no age limit on regular contributions into traditional or Roth IRAs after 70½.

Does a retirement plan at work cover you or your spouse?

For 2024, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is phased out if your modified adjusted gross income (MAGI) is

• More than $123,000 ($126,000 – 2025) but less than $143,000 ($146,000 – 2025) for a married couple filing a joint return or a qualifying surviving spouse,
• More than $77,000 ($79,000 – 2025) but less than $87,000 ($89,000 - 2025) for a single individual or head of household, or
• Less than $10,000 for a married individual filing a separate return (no change in 2025), there is a partial deduction.

If you are married and your spouse is covered by a retirement plan at work and you are not, AND you live with your spouse or file a joint return, your deduction is phased out if your MAGI is:

• More than $230,000 ($236,000 – 2025) but less than $240,000 ($246,000 – 2025).

Withdrawals

After 59½, you will pay ordinary income tax if you withdraw funds from your traditional IRA account. There is no penalty.

What if you are under 59½? You can avoid a 10% penalty in some situations, in other you will pay income taxes. Reach out to us for more details on the exceptions.

Additionally, you can take substantially equal periodic payments using a method approved by the IRS and avoid the penalty. Withdrawals from the account must occur for at least five years or until you reach age 59½, whichever is longer.

Roth IRAs

Roth IRAs are similar to traditional IRAs, with some important exceptions.

1. Contributions are not tax deductible.
2. If you satisfy the requirements, qualified distributions are tax-free.
3. You can leave funds in your Roth IRA as long as you live (there is no RMD).

Contributions

Contribution limits remain the same as those of a traditional IRA.

If you are filing jointly or as a qualifying surviving spouse, your contribution is phased out if your MAGI is

• More than $230,000 but less than $240,000 (2024)
• More than $236,000 but less than $246,000 (2025)

If you are single, head of household, or married and filing separately, your contribution is phased out if MAGI is

• More than $146,000 but less than $161,000 (2024)
• More than $150,000 but less than $165,000 (2025)

Above the respective limits, you may not contribute to a Roth IRA. If you are married filing separately and lived with your spouse during the year, no contributions are allowed if your MAGI is above $10,000.

Does a retirement plan at work cover you or your spouse? This has no impact on your contribution to a Roth.

Withdrawals

You may withdraw contributions at any time, tax-free and penalty-free, as you have already paid income taxes on the contribution. But what about earnings?

Let’s review four scenarios.

1. Over 59½ AND the Roth is held more than five years

• You’ve met the five-year holding requirement. Withdrawals are tax- and penalty-free.

2. Over 59½ AND the Roth is held less than five years

• If you haven’t met the five-year holding requirement, earnings are subject to taxes but not penalties.

3. Under 59½ AND the Roth is held less than five years

• The earnings may be subject to taxes and penalties. However, there are some exceptions. Reach out to us for additional details.

4. Under 59½ AND the Roth is held for more than five years

Your earnings will not be subject to taxes/penalties if you meet one of the following conditions:

• You use the withdrawal (up to a $10,000 lifetime maximum) for a first-time home purchase.
• You become totally disabled or pass away.

The exception for substantially equal payments also applies to Roth IRAs.

The SEP-IRA

A SEP-IRA plan is designed for small businesses and self-employed individuals. Contribution limits are tax deductible to the employer, growth is tax-deferred, and withdrawals are taxed as ordinary income.

The SEP-IRA contribution limit for 2024 is 25% of an employee's total compensation, up to $69,000.

The SEP-IRA contribution limit for 2025 is 25% of an employee's total compensation, up to $70,000.

Contributions must be made by the employer and can vary each year between 0% and 25% of compensation (up to the year’s limit). Each eligible employee must receive the same percentage.

Self-employed individuals may make employer contributions on their own behalf.

Retirement accounts provide numerous benefits. We believe that they are essential for a secure retirement. As we’ve highlighted, they offer flexibility but also introduce a certain level of complexity. We want to emphasize that we are here to assist you with questions you may have.

Why We Are Committed to Biblically Responsible Investing

Biblically Responsible Investing (BRI) is an investment approach that integrates faith-based values with financial decision-making. Rooted in biblical principles, BRI seeks to align investments with moral and ethical standards while pursuing financial returns. BRI is a cornerstone that offers our clients the potential to generate a positive impact beyond financial gains.

We’re committed to helping you experience financial contentment and peace through a plan that’s right for you, and by aligning your investment with your Christian values. It’s about understanding how you want to live and what you want to do. Whether you want to spend time with family or volunteer to make the world a better place, we help you prepare to spend your time, talents, and resources on what matters most to you.

Implementing faith-based investing begins just like any other investment
management process – we’re looking for great investments!

I hope you’ve found this review to be educational and helpful. Our goal is to be a guide to you as you run the race and keep the faith. 

Now let it be known to the king that if this city is rebuilt and its walls completed, they will no longer pay taxes, tributes, or tolls; eventually the throne will be harmed. – Ezra 4:13

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