Good morning. My name is Chad Taylor, managing partner with MDT Financial Advisors here in Houston, Texas. Today is Friday, April the fourth, and I wanted to get on and talk about all the market turmoil that we've had going on the last two days and the tariff implementation, our announcement that was made this week, and talk a little bit about our perspective on what's going on. And when I talk about our perspective, again, I'm talking about the Wells Fargo Investment Institute. They put out a report here yesterday that was titled Implications of a Growing Menu of Tariffs. And if you would like a copy of this, please feel free to ask me for it. I'm going to try to send it out anyway to everybody in email. So be on the lookout for this by the time this video comes out, and you'll probably already received it, but if you don't get it and would like a copy of it, let me know.

So on April the second, president Trump approved some new tariffs that went into effect at midnight on April the third on 50 of our trading partners basically established a 10% minimum tariff and then additional reciprocal tariffs on different countries. Now, when we talk about reciprocal tariffs, it doesn't just mean the stated number that a country puts on the US goods and what they're trying to do. And essentially what we're reciprocating is trying to make the US goods less attractive. And they do that in a number of different ways. So it includes tariffs, it includes government subsidies to local industries. It includes policies to cheapen their currency versus the US dollar. And so when you hear the talking points of reciprocal, it includes not only just the stated tariffs, but those other things that play into a country's ability to make us goods less attractive. Earlier this week, the markets were pretty volatile, but were positive on Monday and Tuesday.

I think at least they weren't very negative if they were negative at all. And so I was fairly hopeful that it wouldn't be too big of a deal. But once the tariffs were announced yesterday, Thursday, the markets were really rough, they were down quite a bit. I woke up this morning to see the futures were down quite a bit. And as we're talking right now, the markets are down quite a bit and we kind of think this volatility, this downside volatility that we're dealing with probably will persist here for a little bit. How long is a little bit that's yet to be seen? But we see the stock market pulling back. We see income yields actually going lower. So bond prices are actually going up, which are helping most portfolios that have bond exposure. And then we're expecting kind of a modest pullback in the dollar exchange.

And the key term that I took from that report that we think at this point is showing a little patience. Let the markets digest the new tariffs and the responses to the government. So the reason the markets, when I went to bed last night, the futures weren't off that much. It was pretty flat, maybe down just a little bit, but China over the evening added to their tariffs. So that's the worry. And so that's when the market started pulling back again. But let's see the responses. And there's basically three different guiding principles or themes that we think we'll make this, that it may be a little oversold right now or a little emotional and we think it will calm down and the economy will continue on. And basically, not all tariffs are created equally. And I'll kind of go over that. Tariffs may raise some prices and slow the economy, but we do believe there are some mitigating factors that could play into that and that we expect the economy to gain some traction in the next couple of months.

And we at this point don't believe that there will be a recession this year, have the chances increased? I would say yes, but we still don't think it's likely this year. Now, I'm always quick to remind people these are projections. These are based on the information that we know right now. If you remember at the beginning of 2024, the Wells Fargo Investment Institute as well as a lot of different money management organizations were predicting a recession in 2024, kind of the second half of 2024, and it never played out. And so short term, it's hard to predict these things, but this is what we know right now and what we're trying to act upon. And that's what I like doing these videos. Sometimes the information in these reports gets a little complicated and I try to give the information in a way that I can understand and hopefully it helps you as well.

When we talk about not all tariffs are created equally, what we and the investment institute are talking about are, although the tariffs were across the board, some of 'em are meant to do different things. So when you look at the tariffs on the China tariffs and the steel, aluminum and vehicle tariffs, those are intended to reshore industries to the us. That doesn't happen overnight. And so that's going to take a while for that to happen, which could persist in maybe as we've talked before, the higher cost. But by contrast, the tariffs on Mexico and Canada appear to induce more control activities along the border. They're trying to get some kind of response or activity from those countries. And they doesn't appear that they were on the April 2nd list. That was about a month ago when we dealt with some of that. And so the point of that is I think there's probably a lot of negotiating going to be happening over the next number of months.

These things take time to filter through, even if they go into effect completely, they take time to filter through. The markets react usually to uncertainty. And in this case, they've reacted negatively to uncertainty, but they usually then start to calm down and start to look at the numbers. And as I mentioned a second ago, the numbers are at this point, we are saying that we don't think it's going to push us into recession. No recession in the markets should find a bottom here and calm down when that's the question. But that's why we're talking about all of these tariffs mean different things to different countries and ultimately to us. Okay, so what are some of the consequences in mitigating factors? Short term economic implications are probably not great because a number of things. One, you see the markets fall like they're falling three 4% a day. Does it happen? Yes. Has it happened before? Yes. Has it happened before when the Dow Jones Industrial average was up near 40,000? No. No. And so the numbers seem bigger, which always seems scarier. And I'm telling myself this as much as I'm telling anybody else because when you see those big drops, it does catch your attention.

But we do think it's emotional at this point. And one of those mitigating factors is changing of consumer buying patterns. And let me step back with those emotional things. What the worry is is that the consumer will stop spending. And that has happened a little bit here in the first quarter and we don't think it will last. You're seeing more savings. So there, there's a lot of cash on the sidelines and there's a lot of credit still available. People have not been purchasing, what was it, A colder winter, you had the fires in California. All of those played into maybe a little bit weaker spending, which we don't think will persist. And that's some of the worry with these tariffs short term that people consider not spending. I know Jennifer and my wife and I, we just had a conversation this morning about maybe not spending on this or maybe not spending on that just as we kind of get through this short term that's being done all over the country right now.

But when you do spend, what we saw from there was a 2025 US Commerce Department report that talked about if the tariffs go into effect on different countries that increased prices, there are alternatives. And in 2023, 52% of domestic consumer purchases came from US domestic manufacturing or content. And so that will probably be the case going forward. If prices go up in one place, maybe they're looking to offset it somewhere else, we'll see. Then the other factors are even if tariffs go up, it doesn't mean that those manufacturers from overseas will pass those prices onto the US consumer or the US manufacturer. And that happened in 2018 where some of the countries and companies overseas, they bid off some of those tariff costs to not increase prices. So we think that you'll see some of that as well. And then finally, I talked a second ago that short term, probably the US dollar is going to pull back slightly.

That's our projection now, but we expect that to turn around and go back up. And if the dollar goes up, that means we're able to purchase more of those goods and just by currency exchanged, that will lower some of the prices as well, which hopefully will help when they give an example. So those are things that you can kind of watch right now, and we believe that, as I said earlier, that a recession is unlikely at this point. The headlines all year so far seem to have be nothing but tariffs, tariff this tariff that you've seen. Some of the technology stocks that were such a high flyer last year get beat up the worst right now, probably not a bad thing for them to calm down or correct a little bit. And we don't think that that will last either and that that will turn around.

So far they've been one of the worst performers, and we think that that will change as we go forward, which should help the markets as well. So persistent tariffs can undercut long-term growth through a combination of factors of higher prices and slower job creation. But if we have weaker consumer sentiment, that can postpones purchasing, which should keep hopefully some of those prices down going forward. So what do we favor doing? Now, what do you do about all this? You may agree with what's going on, you may disagree with what's going on, but how do you handle this situation? As I said when I started the video off, we're preaching patients right now. We want to see how this stuff filters through the economy. It won't happen overnight. Right now it's just more emotion and sentiment than actual dollars and cents, but it can go on longer. Who knows when this will calm down.

So it's kind of the same thing that we always talk about. If you remember, anytime we're investing in the stock market, we're really wanting to have a three year timeframe, a five year timeframe, meaning I'm trying not to make my decisions today based on what's going to happen today or next week or next month. I'm wanting to make those decisions based on what's happening three years from now, five years from now. If I need the money in the next six months, in the next 12 months, there should be a discussion had as to whether or not we should get it out of the markets. So I don't want to say, don't make any choice, don't make any changes, because depending on your situation, making changes sometimes is the right thing to do. But if your goals have not changed, if your investment plan is still intact, if your allocation is still fine, if you don't need the money in the next six months, the next 12 months, staying the course is usually not a bad idea and usually pays off over time.

But if you've been too aggressive, will it turn yes at some point when no one knows for sure. But it's always good to reevaluate your asset allocation or how aggressive you're being with the portfolio right now. So those are all questions that I ask myself You should be asking yourself. If you have questions about that, let's talk. Let's have that conversation. As always, we're here to help. I'm going to try to get this report out or this video out as quick as possible, and I welcome any calls that you have and I really appreciate it. I hope you have a great day. Thank you.