Policy Uncertainty Begins to Weigh on Investors

Authored by: Brad McMillan, Managing Principal, Wealth & Investment Management & Chief

Investment Officer, and Chris Fasciano, Chief Market Strategist at Commonwealth Financial Network?.

"President Trump entered office with a desire to do things differently than his

predecessor. He is certainly doing that. He has been aggressive in implementing some

of his priorities. Better trade deals, lower government spending, tax reform, and

deregulation could be beneficial to Wall Street and Main Street over the long term. It

remains to be seen how successful the president will be in implementing his ideas, but

here is what we know today and how it could affect you.

Tariffs: Negotiating Tactic or Economic Policy?

President Trump has a history of floating trial balloons as a

negotiating tactic. News last weekend that he would implement

tariffs on Canada, Mexico, and China is the most recent example.

To understand the impact of that strategy, it’s important to consider

what might happen over the next few days and weeks.

There is a good chance nothing will happen. Already, we have seen the tariffs on

Mexico and Canada delayed for 30 days after both countries agreed to do more to

secure borders. This delay would buy all parties time to negotiate an outcome without

tariffs, which would be the best-case scenario—an achieved outcome for one of the

president’s priorities without affecting the wallets of U.S. consumers.

But what if the sides can’t agree to a resolution and tariffs are implemented in Mexico

and Canada, in addition to China? Even if tariffs are scaled back, it would most likely

result in higher costs for the day-to-day needs of individuals. The cost of groceries, for

example, could increase quickly. We all need to eat, of course, and elevated prices at

the supermarket have been a consumer concern over the past several years. If we see

an uptick in prices, it could cause higher borrowing costs on credit cards and

mortgages.

Historically, higher rates have affected equity valuations. This could lead to a period of

heightened volatility in the stock market, though we are far from that point.

The Department of Government Efficiency (DOGE): What

Does It Do?

DOGE was put in place to eliminate wasteful spending and

increase deregulation. In theory, this is a good thing. Looking at

ways to make the government more efficient is a worthwhile

endeavor that should have long-term benefits for consumers and markets. But, as

always, the devil is in the details. One person’s wasteful spending is another person’s

necessary program.

The road from campaign promises to governing is difficult because the reality of being

in charge often results in tempered expectations. Elon Musk, who leads DOGE, has

already walked back the department’s original goal of cutting $2 trillion annually to

trimming $500 billion–$1 trillion. Cutting $500 billion–$1 trillion in spending would

still be a positive outcome.

But the real focus of DOGE is weeding out inefficiencies and fraud that leads to

unnecessary spending. It isn’t focused on freezing or eliminating current payments on

programs that provide a safety net, such as social security and Medicare. In fact, if it’s

successful in achieving its goals, it could lower interest rates, lead to economic growth,

and help make social security and Medicare stronger.

Market Volatility: What to Do Now?

Concerns about price increases in our daily expenditures or the end

of government programs are paramount: these issues matter to

Main Street.

We entered 2025 with good economic momentum and a strong jobs market. This

backdrop has led to an optimistic outlook from analysts for earnings growth from U.S.

companies. For now, markets are focused on potential short-term risks to that outlook.

It’s important to remember, even during doom-and-gloom headlines, that periods like

this tend to create opportunities.

No matter the news in the days, weeks, and months ahead, investors in the fixed

income and equity markets will need to anticipate the effect on rates and stock

valuations. It’s hard, if not impossible, to time markets. In the meantime, balance and

diversification across equity and fixed income asset classes is the best way to navigate

uncertainty in the economy, Federal Reserve policy, and actions from the new

administration. Remain vigilant and look for opportunities created by short-term noise

to benefit portfolios over the long term. Stay calm and carry on!"

Paul Bonapart is a Registered Representative and an Investment Adviser Representative with/and offers securitiesand advisory services through Commonwealth Financial Network?, Member FINRA/SIPC a Registered Investment Adviser. Investment Adviser Representative of Financial Security Planning Services, Inc. FinancialPlanning offered through Financial Security Planning Services, Inc. are separate and unrelated to Commonwealth. Fixed Insurance products and services are separate and unrelated to Commonwealth. Indices are unmanaged and cannot be invested into directly. Past performance is not indicative of future results. ? 2025 Commonwealth Financial Network?

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