Market Swings and Trade Tensions

Recently, the stock market saw its biggest one-day drop since April. This happened because of growing tensions between the U.S. and China over special metals and trade fees. The selloff didn't last long, though. Markets bounced back after the White House used gentler language about trade. For people investing for the long term, these ups and downs might feel familiar after a quieter period in the markets.

Even with trade uncertainty this year, markets have done quite well. The S&P 500, Nasdaq, and Dow have all posted double-digit gains. Bonds have also helped investor portfolios, with the Bloomberg U.S. Aggregate Index up 6.7%. This is a historically strong performance for bonds. International markets have done even better than U.S. stocks, with developed markets up 21.9% and emerging markets up 27.0%. With this in mind, it's important not to let one bad day and negative news change your investment approach.

Instead, these market swings remind us that short-term ups and downs are normal when investing. Keeping a long-term view is still the key to reaching your financial goals.

Trade tensions and special metals from China

The recent market volatility came from China putting new limits on exporting rare earth metals. These are special metals used in many high-tech products. In response, the White House threatened to add a 100% tariff (trade fee) on Chinese goods, on top of existing fees. This is part of an ongoing back-and-forth that has created uncertainty all year. The good news is that the White House seems to have softened its stance and suggested negotiations could happen soon.

Why are these metals so important? Unlike many other products the U.S. imports, rare earth metals come mostly from China. Despite their name, these materials aren't actually rare in nature. However, China has built up its mining and processing capabilities over many decades, far ahead of other countries. These materials are essential for smartphones, electric vehicles, batteries, military systems, and other advanced electronics. This gives China significant leverage in trade discussions. China controls about 70% of global production and nearly 90% of processing for these metals. The U.S. has some stockpiles and plans to produce more, but this will take time.

For investors, it's hard to know whether new tariff threats are serious or just part of negotiations. This can cause rapid changes in how the market behaves. That's why it's important not to overreact to headlines. Instead, focus on longer-term trends. This was true during the first trade tensions in 2018 and 2019, and investors who overreacted earlier this year missed out on the quick market recovery.

Market swings have increased after a calm period

Recent market moves have increased uncertainty. This isn't surprising since investors have been concerned about stock valuations (how expensive stocks are) and whether the rally in artificial intelligence stocks can continue.

History shows that volatile periods often create the best investment opportunities. When investors are worried in the short term, it often leads to better prices, which can help long-term portfolios. The chart shows the relationship between the VIX index (a measure of stock market volatility) and how the S&P 500 performed one year later. Historically, when the VIX spikes (meaning more volatility), strong returns often follow. This happens because many investors get fearful and either stay out of the market or sell at the wrong time.

Markets have done well despite negative sentiment

While the 2.7% decline on October 10 was one of the worst days this year, it's important to keep perspective. The chart shows that market declines of 5% or more happen regularly, even in positive years. While this year has felt bumpy, the number of pullbacks has been quite average compared to the past 45 years. In fact, the S&P 500 has risen 31.5% from its April low and hit over 30 new all-time highs this year.

The point isn't that markets always go up smoothly—they don't. Instead, periods of uncertainty are both normal and expected. Investors should always be ready for short-term turbulence. Not worrying about every new development is one of the keys to long-term success.

Thank you for your continued Trust!

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Examples are for illustrative purposes only. All investing involves risk of loss including the possible loss of all amounts invested.