Fears of global recession premature

Markets have given a resounding thumbs down to Trump's Liberation Day tariffs, with fears that they may induce a global recession. The US market has now entered bear market territory, with 20% falls from the mid-February market highs. Now we have seen similar falls across Europe, Asia and domestically here in Australia.

Trade is good for the economy

Efficient trade is the keystone of the global economy. It allows countries to specialise in what they are good at, rather than be self-sufficient. Tariffs are a blockage to free trade, and are threatening to unwind the benefits of globalisation, at least in the US.

Markets hate uncertainty and Trump's game plan is far from clear. It may be that Trump, ever the dealmaker, is using a tactic to reset expectations from which negotiations can begin with the individual countries. If that proves to be the case, then the market will settle and probably rebound, testing the previous highs.

If Trump is not bluffing, then we have options. Countries will need to broaden their trade partners and businesses will need to redefine their supply chains. This will be complex and painful, but it can be done. In Australia, we have a plethora of Asian countries to trade with in new and creative ways. We may even benefit from these new trading arrangements. For instance, consumers may see prices falling on capital goods like appliances and new cars. This, in turn, may lower inflation enabling the reduction of interest rates.

The sheer number of possible scenarios is precisely why fears of a global recession are premature.

Ride out the volatility

Seeing your portfolio decrease suddenly is hard and may test your emotions. You may experience feelings of anger and fear. And it may even be tempting to flee to cash at this time.

But keep in mind that market fluctuations are a normal part of investing and are to be expected. In fact, we planned for them.

We have compartmentalised your money so that you do not need to liquidate growth-style assets in times like these. Historically, well diversified portfolios recover from bear markets and surpass their previous highs.

If you would like to learn more about how we can give you confidence to spend in uncertain times, or you would like to review your investment options, give us a call.  We would love to help. 

                                                - Daniel Crump is an independent financial adviser

Daniel Crump is the founder of Daniel Crump Financial Planning.  This article is general and does not consider your personal circumstances.  If you would like advice specific to you, please visit www.danielcrumpfp.com.au or give us a call on 0418 148 622.