The current period of market volatility, driven in part by the current U.S. administration’s policy choices, can tempt investors to react impulsively with their long-term investments. It’s crucial to remember that market volatility, along with the accompanying stress and doubt, is a normal part of investing – a reflection of both economic realities and human nature. Investors can navigate these shifts in global trade and alliances by pausing, reflecting on past experiences, and centering their investment decisions on a well-defined strategy.
Learning Points
Market Volatility: A Brief Perspective and Current Context
Market volatility, coupled with rising inflation, can reduce the purchasing power of your savings. It can influence your sense of financial security and preparedness.
Market volatility is a normal part of investing. The range of emotions, the stress and the doubt that can percolate up during prolonged market volatility, policy uncertainty, and geopolitical tensions are, unfortunately, a normal part of investing, too.
Volatility can be a data-driven adjustment to new information, or a lack thereof.
Investors, like most humans, have been shown to be irrational individually and act irrationally as a group. Without diving deep into the history of investment bubbles and manias, markets can be reflective of our collective human irrationality.
Take for example, Charles Mackay’s “Extraordinary Popular Delusions and the Madness of Crowds” written in 1841. This classic book delves, in part, into the theme of human irrationality during the 17th century in Holland. Alan Greenspan highlighted this theme in 1996 when he coined the phrase “irrational exuberance” to describe the potential overvaluation of equity markets during the run up to the dot-com bubble.
This is not to say that all market volatility is directly a result of investors behaving irrationally.
The current, broader market volatility does not appear to be driven by investors chasing the next hot thing. Investor flows into FOMO-type investments and meme investing aren’t currently driving major markets.
Rather, the current market volatility appears to be more reflective of several of the United States administration’s policy choices:
- Tariffs, and related trade policy uncertainty.
- Challenges to current international alliances
The downstream effects of these policy choices are starting to show up beyond the daily gyrations of the market.
Tariffs
At the Port of Los Angeles, shipping volumes from China to the United States are down 20% year-over-year[i]. In an interview on April 28, 2025, Treasury Secretary Bessent noted that, ”I think we’ll see some elasticities. I think we’ll see replacements, and then we will see how quickly the Chinese want to de-escalate.”
For U.S. consumers like you and I, this translates to changing our buying habits as prices increase. Either buying less or seeking cheaper alternatives. The second statement points to companies switching to different suppliers to produce their goods.
Alliance Uncertainty and Global Rearmament
Defense spending continues to rise domestically and internationally[ii], with countries increasing investments in the areas like ship building capacity and maritime infrastructure (e.g. China), drone manufacturing (e.g. Ukraine), and artillery production capabilities (e.g. U.S. and Finland).
These shifts reflect a growing sense that a mixture of attritable (low-cost FPV drones) and high-end systems (e.g. the tit-for-tat rollouts of the B-21[iii], J-36[iv], and F-47[v] next generation aircraft from the U.S. and China).
As well as strategic capabilities – including overt displays of sea power, cyber-attacks, and near real-time evolution of anti-drone systems – all designed to protect nations during potential conflicts in the near- and medium-term future.
Further complicating matters is the increasing use of grey-zone tactics by nation states to shape the international order on the margins. In some respects, these tactics, when applied in a programmatic way, almost become normalized when they are, in fact, anything but ordinary.
Amidst these shifts, some investors appear to be chasing soundbites and headlines rather than responding to specific, completed trade policy accomplishments.
For example, recent U.S. administration statements to the press about ongoing discussions with China and the U.K. did not include details of how the Liberation Day tariff regime would be de-escalated. And yet, markets are responding to these statements.
Tariffs are already shifting global supply chains, and left unchanged, can cause U.S. consumers to experience more of the negative effects in the short-term before any proposed long-term benefits.
It is precisely in this context that market volatility can create emotions that cause us to pay more attention to our investments and to act irrationally. In the financial elements of your life, the long-term effects of irrational investment behavior can be magnified when the markets are not calm.
For example, making reactive, short-term, event-driven financial decisions with long-term investments could negatively influence your ability to achieve your goals.
To help you better identify emotionally driven investment moments in your own life, consider the following.
Our Confirmation Bias
Consider for a moment that we often pay more attention to and filter in information that supports what we believe to be true. This confirmation bias can cause us to filter the world around us so that data fits our perspective of why things are the way they are.
Social media, and its echo chamber-like designs can magnify our confirmation bias with information and news stories that support a particular viewpoint. [vi]
Whether the actual totality of the information supports your perspective is a different matter.
What are some simple approaches you can use to keep calm amid market volatility?
Pause and Reflect
When you’re feeling the effects of market volatility in your life, it’s helpful to assess why you’re feeling the way you are.
So, rather than scrolling to the next post, the next tweet, the next reel, or podcast, take a moment to talk with a friend or write down your thoughts. This can help you deepen a connection and sharpen your ability to articulate the central issue(s) you’re evaluating.
For many investors, you might not be reacting to hard data points, like the closing price of the Russell 2000 index or the yield on the 10-year Treasury Note. Rather, you could simply be processing the headlines from the world around you. Events, developments, and trends that are indeed real.
Our perceptions of those events might not align with the objective reality of those events, though.
Have We Been Here Before?
Once you have a sense of where you’re at, reflect on other times when you’ve felt similarly about the markets, or the world.
Have you experienced this before? What lessons from your investing past can help guide your next step? While the specific investing lessons of previous moments of market volatility might not apply today, there are behavioral learnings that can apply in the current context.
For example, it’s important to understand the data, to apply logic, and to quantify what we can. At least to a certain degree.
Historical returns, correlations, and future-looking capital market assumptions are somewhat helpful. They can help guide your investment strategy. They are not, however, predictive. They do not represent future facts, even if they’re presented as quantifiable data points.
Perhaps you’ve already done the hard work of thinking through when you should stay the course and when to rebalance by creating an investment policy statement.
Your investment policy statement is one objective tool you can use to stay grounded in facts and avoid an emotionally driven investment decision.
It’s time well spent to be honest with your family’s ability and true willingness to take risk in the current moment. As much as we like to be grounded in fact, only you and your spouse know what it takes to sleep well at night.
Looking Ahead
The recent and sharp shifts globally in trade policy, foreign diplomacy/alliances, rising defense spending, and the pursuit of nationalist policies suggest that the world has fully and completely left the Pax Americana period.
It’s entirely possible our perceptions have just now caught up with the reality that the world exited Pax Americana a long time ago.
As global trade alliances evolve and the world shifts to a more fragmented environment, academically researched investment strategies of the past fifty years will need to adjust with the data.
Shifting capital flows due to tariffs, the perceived safety of specific government-backed debt, and interest rates, for example, will influence changes to investors’ ability to diversify their investments.
There is value in taking a long-term view of the markets and continuing to pursue a diversified investment strategy.
It is my sense that long-term strategies will need to be more hands on as countries re-align their economies and diplomacy, capital flows adjust, and the risks of conflict become even more quantifiable.
Taking a Strategic View of Your Finances
We help busy parents and individual professionals like you develop financial plans to address questions like:
- How can we save for a fulfilling retirement beyond our 401(k) plans?
- What does it take to save for the kids’ education and make a lifetime of memories along the way?
- These causes are close to our hearts – what are our options to give even more meaningful support?
As your financial planner in Saint Louis, we can help you get organized and start feeling more confident that you are making progress towards your savings priorities.
Working with your financial planner can provide you with the right mix of accountability, collaboration, and long-term thinking.
When you know who and what are truly important, we can help you create incredible clarity about your spending and savings priorities. Clarity to confidently save for and spend on what matters.
If you’re ready to take the next step together, let’s talk.
Disclosure
This commentary is provided for educational and informational purposes only and should not be construed as investment, tax, or legal advice. The information contained herein has been obtained from sources deemed reliable but is not guaranteed and may become outdated or otherwise superseded without notice. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decision.
[i] Hampstead, J. P. (2025, April 22). Plunging LA Port Volumes Spell Trouble for Truckers. FreightWaves. https://www.freightwaves.com/news/plunging-la-port-volumes-trouble-truckers
[ii] International Institute for Strategic Studies. (2025, February 12). The military balance 2025: Defence spending and procurement trends. International Institute for Strategic Studies. https://www.iiss.org/publications/the-military-balance/2025/defence-spending-and-procurement-trends/
[iii] Lopez, C. T. (2022, December 3). World gets first look at B-21 Raider. U.S. Department of Defense. https://www.defense.gov/News/News-Stories/Article/Article/3235326/world-gets-first-look-at-b-21-raider/
[iv] Doyle, G. (2024, December 27). Images show novel Chinese military aircraft designs, experts say | Reuters. Reuters. https://www.reuters.com/world/china/images-show-new-novel-chinese-military-aircraft-designs-experts-say-2024-12-27/
[v] Secretary of the Air Force Public Affairs. (2025, March 23). Air Force Awards contract for Next Generation Air Dominance (NGAD) platform, F-47. Air Combat Command. https://www.acc.af.mil/News/Article-Display/Article/4131605/air-force-awards-contract-for-next-generation-air-dominance-ngad-platform-f-47/
[vi] Modgil, S., Singh, R.K., Gupta, S. et al. A Confirmation Bias View on Social Media Induced Polarisation During Covid-19. Inf Syst Front 26, 417–441 (2024). https://doi.org/10.1007/s10796-021-10222-9