Less than two weeks after his inauguration, President Trump announced plans to impose sweeping 25% tariffs on most Canadian and Mexican imports, 10% on Canadian energy imports, and a 10% tariff on Chinese imports. The President cited illegal immigration and drug smuggling, such as fentanyl, as rationale to impose these tariffs under the International Emergency Economic Powers Act.
Tariffs act as an increased tax on consumers, driving up prices of regularly used goods such as lumber, automobiles, pharmaceuticals, and food. As global markets have grown increasingly interconnected, tariffs also complicate supply chain management for many corporations. These factors may lead to stickier inflation in the U.S., which can further complicate liquidity conditions and the expected Federal Reserve interest rate cuts.
Despite pressure from tariffs and inflation on the global economy, we remain focused on identifying risk-adjusted opportunities and maintaining resilient investment portfolios in the face of trade uncertainties.
King Dollar Reigns
The tariffs are being imposed at a moment of U.S. Dollar strength. The Dollar Index, which measures the U.S. dollar’s strength relative to foreign currencies such as the Euro, Yen, and Canadian Dollar, is nearing the highest level since the fallout of the 2000 technology bubble.
U.S. Dollar Index
Sources: Intercontinental Exchange, Yahoo! Finance
One does not need to be a financier to recognize that when the dollar is strong, foreign assets are cheaper for American consumers and investors. For instance, many Americans have found themselves enjoying overseas travel more recently as French luxury goods, a ski trip in the Alps, and a sushi meal in Tokyo have become increasingly affordable relative to what the most comparable goods and experiences cost on U.S. soil.
Overseas Equities
Notwithstanding tariff threats and a strong U.S. Dollar, overseas equities have shown resiliency to start 2025, outperforming U.S. equities.
While one robin does not make a spring, overseas equities are priced at a nearly 40% discount to U.S. equities. This is the cheapest that overseas equities have been relative to U.S. equities in a generation. We believe there is a case to be made that the sheer magnitude of how cheap overseas equities have become could serve to undermine tariff and currency related headwinds.
Source: Yardeni Research
One key risk that equity investors face today is overconcentration, as many portfolios are overweight richly valued U.S. mega-cap technology companies.
Global diversification continues to play a critical role in our clients’ portfolio construction to not only reduce risk, but also to give our clients exposure to potential higher relative returns.[2]
About RISE Investments
RISE Investments is a dynamic, independent wealth management firm that delivers tailored investment management, financial planning, and estate planning services to our clients. Established in 2019, RISE Investments is committed to offering highly personalized, fiduciary-driven advice to help our clients achieve long-term financial security and growth.
Contact us at clientservice@riseinvestmentsusa.com to learn more about RISE Investments and how we can serve you.
Footnotes and Disclosure
[1] Overseas equities are defined as the MSCI ACWI ex US Index. U.S. equities are defined as the S&P 500 Index. Data is per Morningstar.
[2] For starters, the dividend yield on overseas equities is 2.9%, more than double that of 1.3% for U.S. equities.
*RISE Investment Management, LLC ("RISE" or "RISE Investments") is an investment adviser registered under the Investment Advisers Act of 1940. Registration of an investment adviser does not imply any level of skill or training. This publication is solely for informational purposes and past performance is not indicative of future results. Any historical returns, expected returns, or projections are provided for informational purposes only. The description of products, services, and performance results of RISE contained in this publication are not an offering or a solicitation of any kind. No advice may be rendered by RISE Investments unless a client service agreement is in place. Advisory services are only offered to clients or prospective clients where RISE Investments and its representatives are properly licensed or exempt from licensure. All of the information in this publication is believed to be accurate and correct as the date set forth. RISE does not have or accept responsibility or an obligation to update such information. Indices are not actively-managed and investors cannot invest directly in an index. Past performance is no guarantee of future results.