Financial markets continue to react to proposed policy changes from Washington DC, with day-to-day news about tariffs having a particularly strong impact on the stock market. Much of recent selloff in equities has been offset by subsequent rallies, with the S&P 500 now down less than 3% on the year as of the time of this writing. However, forthcoming news – possibly as soon as today – could see a resumption in short-term market volatility.
In this update, we attempt to break down the latest developments in trade, immigration, fiscal policy, and regulation—and what they mean for the economy and your investments. As always, Evermay is keeping a close eye on these shifts to help you stay informed and confident in your financial strategy.
A Shifting Landscape
Over the past few months, we’ve seen a wave of policy changes, from new tariffs to adjustments in federal spending. While these shifts bring challenges and opportunities, along with short-term financial market volatility, the long-term outcomes remain uncertain, especially as the current and future administrations continue to shape economic policy.
One major factor influencing today’s economy is the evolving role of monetary policy. Unlike the post-2008 financial crisis and COVID-19 periods, the Federal Reserve still has tools at its disposal to respond to economic slowdowns. And after several years of monetary policy tightening in the fight against post-Covid inflation, we’ve seen a shift toward a more supportive stance, with a focus on stability and job growth. Importantly, we believe the Fed has room to further reduce interest rates in response to signs of potential economic weakness.
At the 2025 U.S. Monetary Policy Forum earlier this month, Fed Chair Jay Powell outlined four key areas of policy focus – trade, immigration, fiscal policy, and regulation.
Each of these areas carries wide-ranging effects, but interpreting their impact isn’t always straightforward. Our individual perspectives shape how we perceive economic changes, and even small policy shifts can have meaningful effects on families, businesses, and investors alike.
Breaking Down the Policy Impacts
Trade
New and potential tariffs are making headlines, but their impact on overall economic growth is expected to be relatively modest.
- Wall Street firm Goldman Sachs estimates that proposed tariffs (including 10% on critical imports and 25% on EU autos) would reduce GDP by 0.2%.[1]
- Yale University’s Budget Lab projects that reciprocal tariffs could lower 2025 growth by 0.6% without retaliation and 1% with retaliation.[2]
While these numbers aren’t insignificant, they aren’t expected to trigger a recession on their own.
Immigration
Policy changes affecting immigration could also slightly slow economic growth. Credit rating firm Moody’s estimates that deporting 1 million unauthorized immigrants per year could lower GDP by 1% by 2026.[3]
The labor market impact of these changes will depend on how businesses adapt and whether other workforce shortages arise.
Fiscal Policy
The national deficit is a hot topic among politicians and economists alike, with projections suggesting some widening in the budget gap over the next decade.
- Under current law, the deficit is projected to shrink as a percentage of the overall economy, from 6.4% of GDP in 2024 to 5.2% in 2027, averaging 5.8% over the next decade.[4]
- However, proposed tax cuts and spending changes could push the average deficit to 6.8% of GDP over the 10-year period.[5]
- The Penn Wharton Budget Model, which includes all proposed tax and spending cuts, estimates these changes could increase GDP by 0.3% over the current baseline by 2034, with potential boosts to corporate earnings from cuts in the corporate tax rate.[6]
Regulation
Deregulation is often seen as a positive for businesses, particularly in the financial sector.
- Lower compliance costs could increase profitability for financial institutions.
- Loosening restrictions on lending could lead to more credit expansion, supporting economic growth. However, these benefits are weighed against long-term financial stability risks.
How We’re Positioning Portfolios
While policy changes are always evolving, our investment approach remains focused on balancing long-term opportunities with prudent risk management.
- For stocks, we continue to recommend staying the course for long-term investments, as history has shown that reacting to short-term uncertainty can be costly.
- For bonds, we’re continue to emphasize U.S. Treasuries in client portfolios. These provide greater stability and serve as a ballast of safety and a reliable buffer in market downturns.
Staying Proactive
Sticking to a long-term approach doesn’t mean standing still. Market volatility, whether driven by policy changes or broader economic shifts, can present opportunities to strengthen your financial position.
- Portfolio rebalancing, sometimes referred to by the classic phrase, “buy low, sell high,” is part of our normal portfolio management process, and allows us to keep your portfolio’s asset allocation in line with your long-term investment objectives.
- Tax-loss harvesting, as part of that rebalancing process, can help offset future capital gains, potentially reducing tax liabilities.
- Converting traditional IRAs to Roth IRAs during market dips can lead to long-term tax advantages.
Being prepared for market swings, whether expected or unexpected, is key to avoiding emotional decisions that could impact your long-term financial success.
If you have any questions about how these policy shifts may affect your portfolio, we’re always here to help. Reach out to your Evermay advisor to discuss how we are keeping your financial strategy on track.
Sources
[1] https://www.goldmansachs.com/pdfs/insights/goldman-sachs-research/trump-tariffs-mostly-talk-or-big-action/TOM_tariffs_REDACTED.pdf
[2] https://www.moodys.com/web/en/us/site-assets/assessing-the-macroeconomic-consequences-of-harris-vs-trump.pdf
[3] https://budgetlab.yale.edu/research/fiscal-economic-and-distributional-effects-illustrative-reciprocal-us-tariffs
[4] https://www.cbo.gov/system/files/2025-01/51118-2025-01-Budget-Projections.xlsx
[5] https://www.crfb.org/blogs/house-budget-allows-least-28-trillion-deficit-increases
[6] https://budgetmodel.wharton.upenn.edu/issues/2025/2/27/fy2025-house-budget-reconciliation-and-trump-tax-proposals-effects
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Past performance is no guarantee of future results. All investments involve risk, including loss of the principal amount invested. Diversification and asset allocation strategies do not ensure a profit and do not protect against a loss, especially during periods of market downturns.
This information is educational in nature, and not as a recommendation of any particular investment strategy. Given various factors, including changing market conditions, the views and opinions expressed are subject to change.
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