One key issue has kept investors on the edge of their seats in recent weeks: President Trump's plan for tariffs on imports. The president initially launched certain tariffs on key trading partners to protest the circulation of lethal drugs across borders and into the U.S., and then broadened the plan to include specific goods and additional countries.
All this has spurred concern that these tariffs could result in higher prices for companies and the consumer -- and ultimately weigh on growth. That's pushed growth-oriented stocks lower in recent weeks and has prompted many investors to wonder whether they should be investing in this environment.
And now we're heading for a key moment -- one that may represent the president's biggest tariff move yet. On April 2, Trump has pledged to launch certain previously announced tariffs and reveal new ones. Should you really buy stocks before these announcements?
The evidence is piling up. Here's what it shows.
Image source: Getty Images.
What we know about Trump's tariffs
First, though, let's consider what we know about the tariffs so far. Earlier this month, the U.S. launched 20% tariffs on imports from China and 25% tariffs on Mexican and Canadian goods that aren't included in a North American trade agreement. And the government also put into place 25% tariffs on steel and aluminum imports from any country.
Trump has said that on April 2 he will extend tariffs to all goods from Mexico and Canada, launch reciprocal tariffs to other countries -- matching their import tariff levels -- and even announce additional tariffs. In recent days, though, words from Trump have stirred optimism that he may be more flexible on these duties than originally planned, which has helped buoy stocks. For example, the S&P 500 (^GSPC 0.24%), which slipped into correction territory on March 13, but has since rebounded and emerged from that zone.
Now, let's consider our question about buying stocks in today's environment, ahead of Trump's announcements. Trump isn't new to the world of tariffs -- he launched them on steel and aluminum as well as tariffs on goods from China in 2018 during his first term.
Though tariffs today may be more significant in size and scope, it's still important to note that, following the 2018 tariffs and the trade war that ensued, the stock market held up, with the S&P 500 gaining 20% from March 2018 through the end of 2019. And S&P 500 earnings per share also finished this time period with a gain, suggesting the impact of tariffs may have been limited.
An element that could boost appetite for stocks
It's also important to note that, following significant worries among investors in recent times, any flexibility from Trump could boost sentiment and appetite for stocks. According to CNN, Trump on Monday said, "I may give a lot of countries breaks." The S&P 500, the Nasdaq Composite (^IXIC 0.26%), and the Dow Jones Industrial Average (^DJI 0.01%) each ended the Monday trading session higher.
So, evidence shows the impact of the tariffs may not equal a disaster for the stock market -- and Trump's moves may be lighter than what was originally planned or expected. Those are positive points to keep in mind.
Now, here's a point that's even better: When you invest for the long term, you don't have to worry too much about short-term disturbances. Of course, it's key to choose companies with the financial and strategic strength to withstand the pressure of headwinds -- such as tariffs, in this case. But, if you're able to do this, you don't have to fear challenges that arise along the investment path.
That's because, whether near-term issues boost or drag down your holdings today, these movements won't significantly change your returns if you hang on to your positions for the long term -- by this, I mean at least five years. Over this time period, a company has time to recover, if needed, and grow -- and you'll have time to benefit.
And in more good news, since the valuations of many quality stocks have come down, these days you can get in on them for excellent prices.
All this means that now, before Trump's April 2 announcement, is a fantastic time to buy stocks and keep progressing along the road to wealth.
