Long-time listeners know that we don’t typically focus on short-term market movements. That’s because the nature of investing is long-term. The daily ups and downs of individual stocks, mutual funds, ETFs, or market indexes are not relevant to long-term wealth creation. They’re often just noise—blips on the radar—not worthy of deep analysis or panic.
However, every once in a while, circumstances arise that do warrant a deeper conversation. When the headlines and your news feed start buzzing with talk of market pullbacks, it’s worth addressing what’s going on, putting it in historical context, and offering some perspective and strategies to help you navigate through it.
Noise vs. Signal
Let’s be clear: most politics and news are just noise in the system. They’re not signals that you should be reacting to from an investment standpoint. You cannot build a solid, long-term investment policy based on which political party is in power. There is no statistically significant relationship between who holds the presidency or controls Congress and the performance of the stock market.
There have been bull markets (a sustained period where stock prices are rising, typically marked by a 20% or more increase from a recent market low) under both Democrats and Republicans. There have also been downturns under both. Political developments can have some short-term influence, but in the long run, they tend to have a negligible impact—especially since many policy proposals are either watered down or never make it into law.
So, Why the Market Volatility Now?
What we’re seeing now is tied to a specific set of policy decisions—namely, the implementation or expansion of tariffs on foreign goods.
A tariff is essentially a tax on imported goods. If a 25% tariff is imposed on widgets coming from Taiwan, that makes them 25% more expensive. The cost has to be absorbed either by the importing company or passed on to consumers. Often, it’s a bit of both. But either way, it squeezes profits.
For publicly traded companies, reduced profits can mean a reduced valuation. That leads to more selling than buying of the company’s stock, and stock prices drop. Multiply that across industries and you see broader market declines.
If these tariffs stay in place for an extended period, it could lead to lower consumer demand—because things like cars, refrigerators, and baseball bats become more expensive. Lower demand means slower economic activity, which raises the risk of a recession. A recession, in turn, negatively affects corporate earnings and stock prices.
So yes, this current dip is real and rooted in actual economic policy. But how should you respond?
Contact
Don’t Gamble—Invest
Investing and financial planning are long-term pursuits. Overreacting to short-term volatility is often a losing game. When people say they’re going to “play” with money in the market, that’s not investing. That’s gambling.
The key difference between gambling and investing is time horizon.
- Short-term (0–2 years): Money needed for near-term goals should be in a bank account, CD, or money market. Protected from risk, earning modest interest.
- Intermediate (2–5 years): Some investing may be appropriate, but caution is advised.
- Long-term (5+ years): This is where true investing lives. You can afford to ride out the ups and downs, and statistically, the longer your time horizon, the better your odds of seeing positive returns.
You cannot predict short-term market movements. Not even the best professionals or the most sophisticated AI can consistently do that. The market is random in the short term, and randomness cannot be forecasted.
Remember the Casino Analogy
The odds in a casino are always in favor of the house. Even the most favorable games—like roulette or skilled blackjack—are only slightly better than a coin flip. The longer you stay, the more likely you lose.
The same goes for treating the market like a casino. Jumping in and out based on headlines or gut feelings is a recipe for disappointment.
Las Vegas was built on losers, not winners.
Accumulation vs. Distribution
Whether you’re in the accumulation phase (still working and saving) or the distribution phase (retired and drawing down), your reaction to market volatility should be different—but always measured.
- Accumulators: Keep contributing. You’re buying at a discount.
- Retirees: Make sure you have short-term cash needs set aside in safer vehicles, so you don’t have to sell investments at a loss.
Where Are We Now?
As of this writing, the S&P 500 recently closed at 4,983, down from its all-time high of 6,147 just about a month and a half ago. That’s a 19% decline from the peak.
- A correction is typically defined as a 10% decline.
- A bear market is a 20% decline from peak to trough.
We’re just shy of entering bear market territory—but close.
Final Thoughts
This kind of movement isn’t fun. It can feel unsettling. But it’s not unusual, and it doesn’t necessarily signal a long-term problem. The best course of action is almost always to stay the course, stick to your plan, and remember that time in the market beats timing the market—every time.