Our Thoughts on Tariffs

It is impossible to know exactly how this will play out. President Trump often begins negotiations with extreme positions that are ultimately moderated. In the days since the announcement, the U.S. has agreed to delay the implementation of tariffs on Mexico and Canada for one month in exchange for taking steps toward preventing the trafficking of fentanyl into the U.S. China has announced plans to impose retaliatory tariffs of up to 15% on select U.S. imports.

Tariffs add a great deal of uncertainty to markets. They are most likely inflationary in the short term but could be deflationary in the long term. It’s difficult to know how governments, companies, and central banks will respond. The good news is that the U.S. economy is strong; unemployment is low, consumers are spending, and corporate earnings are growing. Even if tariffs slow the economy, there is some cushion to work with.

Canada, Mexico, and China account for roughly 7% of S&P 500 sales. However, certain companies are more exposed than others. Some companies derive 50% or more of their revenue from China. This divergence is an opportunity for stock picking; we have focused on U.S.-based revenues and manufacturing for a few years now and expect our strategies to hold up better than the broader market if a trade war materializes.

It is too early to know exactly what lies ahead, but we feel good about where our strategies are positioned. We feel the companies in our portfolios have balance sheets, leadership, and revenue streams to navigate turbulent times. We have confidence that they will continue to do so. If you have any questions or concerns, please reach out to your advisor team.

Your Investment Policy Committee

This  was prepared by Donaldson Capital Management, LLC, a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Information in these materials are from sources Donaldson Capital Management, LLC deems reliable, however we do not attest to their accuracy.

An index is a portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance to certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. An index does not charge management fees or brokerage expenses, and no such fees or expenses were deducted from the performance shown. Past performance is not a guarantee of future results. The mention of specific securities and sectors illustrates the application of our investment approach only and is not to be considered a recommendation by Donaldson Capital Management, LLC.

S&P 500: Standard & Poor’s (S&P) 500 Index. The S&P 500 Index is an unmanaged, capitalization-weighted index designed to measure the performance of the broad U.S. economy through changes in the aggregate market value of 500 stocks representing all major industries.