August 2025 Investment Update
Navigating Trade Winds:
A Disciplined Approach to Investment
As global headlines continue to shift, particularly concerning trade policy, it’s natural to seek deeper understanding. This update not only covers your investments but also offers a detailed, factual exploration of tariffs. By providing this balanced insight, we aim to equip you with a clearer understanding of these economic tools, reinforcing the strategic and unemotional approach that guides our management of your long-term financial goals.
Asset Allocation Update
July presented a mixed picture for major U.S. indices, following the broad strength seen in June. As our CIO, Chris Harris, notes, the month was characterized by volatility, with muted net results.
- S&P 500: +0.5%
- Dow Jones Industrial Average: -2.0% (Source: Markets News, August 1, 2025)
“In environments marked by such fluctuations, it is common for emotional responses to begin influencing investment decisions. However, we have consistently adhered to our established process. Our disciplined approach to investing, supported by strong diversification across areas of opportunity, remains central to our strategy.”
While past performance is not indicative of future results, these developments contributed to improved sentiment across a broad range of sectors.
Current Portfolio Positioning
As we move into August, our core investment holdings continue to provide a robust foundation for your portfolios. Based on our ongoing analysis and long-term outlook, we have maintained specific overweight positions
Core Allocations - No Change
Our portfolios continue to include diversified exposure to:
- Large-cap U.S. equities
- Small-cap U.S. equities
- Fixed income allocations appropriate to your individual risk profile
These remain the backbone of our investment approach.
Current Overweights
We are currently maintaining a slight overweight position in:
- Healthcare: This sector currently presents very low valuations, indicating potential long-term value.
- Materials
- Biotechnology
These strategic allocations reflect our analysis of current market opportunities and risks across various sectors, ensuring your portfolio maintains a strong foundation designed for long-term performance and resilience.
Economic Insights: Understanding Tariffs
A tariff is essentially a tax imposed by a government on goods and services imported from other countries. When a product enters the country that imposed the tariff, an additional cost is added to its price. This makes the imported good more expensive compared to similar goods produced domestically.
Governments typically implement tariffs for several reasons:
- To generate revenue: Tariffs contribute to government income.
- To protect domestic industries: By increasing the cost of imported goods, tariffs aim to make domestically produced alternatives more competitive, thereby supporting local businesses and jobs.
- To address trade imbalances: Some governments use tariffs to try and reduce a trade deficit, aiming for a more balanced trade relationship with other countries.
- As a negotiating tool: Tariffs can be used to exert pressure on other nations during trade discussions or in response to their economic policies.
How Tariffs Function and Their Economic Impact
While the importer (often a domestic company) pays the tariff to their government, the economic burden can be spread across various groups:
Increased Consumer Prices:
Importers often pass the additional cost of the tariff onto consumers in the form of higher retail prices for imported goods. This means consumers ultimately pay more.
Reduced Profits for Foreign Exporters:
Foreign companies may choose to absorb some of the tariff cost by lowering their pre-tariff prices to remain competitive in the importing country’s market, which reduces their profit margins.
Impact on Domestic Industries:
While tariffs are intended to protect local industries, the effects can be complex. Domestic producers of similar goods might see increased demand. However, domestic industries that rely on imported materials or components will face higher input costs, which can then be passed on to consumers or reduce the competitiveness of their own products.
Risk of Retaliation:
A significant concern with tariffs is the potential for retaliatory measures. When one country imposes tariffs, the targeted country may respond with its own tariffs on the first country’s exports. This can escalate into “trade wars,” leading to reduced overall trade volume and strained international relations.
Different Perspectives on Tariffs: Pros and Cons
The use of tariffs is a subject of ongoing debate among economists and policymakers. Here are the main arguments for and against them:
The Protectionist View
(Arguments in favor of Tariffs)
Support for Domestic Industries and Employment:
Proponents argue that tariffs shield developing or vulnerable domestic industries from intense foreign competition, allowing them to grow, innovate, and secure or create jobs within the country. This can be particularly relevant for strategic sectors like steel, aluminum, or emerging technologies.
National Security and Self-Sufficiency:
In critical areas, tariffs can reduce reliance on foreign suppliers, enhancing a nation’s ability to produce essential goods independently for national security.
Addressing Unfair Trade Practices:
Some argue tariffs are necessary to counter what they perceive as unfair trade advantages by other countries, such as government subsidies to their industries, intellectual property theft, or lax labor/environmental standards.
The Free Trade View:
(Arguments against Tariffs)
Higher Costs for Consumers:
Critics highlight that tariffs ultimately act as a tax on consumers, leading to increased prices for imported goods and potentially for domestic goods that use imported components. This reduces consumer purchasing power.
Reduced Competition and Innovation:
With less foreign competition, domestic industries may face less pressure to innovate, improve efficiency, or offer competitive pricing, potentially leading to stagnation in quality or higher prices.
Economic Inefficiency:
Many economists argue that tariffs distort market signals, diverting resources towards less efficient domestic industries that might not otherwise be competitive. This can lead to a less efficient overall economy.
Risk of Trade Wars and Global Instability:
A primary concern is that tariffs frequently provoke reciprocal tariffs from other countries. Such retaliatory actions can escalate into trade wars, harming a country’s export industries, disrupting global supply chains, and hindering overall economic growth.
Recent Real-World Examples and Historical Lessons
We have seen these dynamics play out in recent years:
- U.S.-China Trade Dispute (2018-present): Starting in 2018, the United States imposed tariffs on a wide range of goods imported from China, citing issues like intellectual property theft and trade imbalances. China retaliated with its own tariffs on U.S. products. This led to increased costs for many American businesses and consumers, disrupted global supply chains, and impacted the profitability of U.S. companies reliant on exports to China (e.g., agricultural products like soybeans). While some U.S. industries saw a boost, others faced higher input costs or lost market share abroad.
- Steel and Aluminum Tariffs (2018): The U.S. imposed tariffs on steel and aluminum imports from various countries, including allies, citing national security concerns. While intended to protect domestic steel and aluminum producers, this led to higher prices for companies in the U.S. that use these metals (e.g., auto manufacturers, construction companies). It also prompted retaliatory tariffs from countries like Canada, Mexico, and the European Union on U.S. exports, such as whiskey, motorcycles, and agricultural goods.
These modern examples echo lessons from history, particularly the Smoot-Hawley Tariff Act of 1930. This act is frequently referenced because it serves as a stark warning about the potential dangers of widespread protectionism. Passed during the onset of the Great Depression, Smoot-Hawley dramatically raised U.S. tariffs on thousands of imported goods. This led to swift and widespread retaliation from other countries, which then imposed their own tariffs on U.S. exports. The resulting collapse in international trade is widely considered to have deepened and prolonged the Great Depression, contributing to global economic hardship and unemployment. The act highlighted how interconnected global economies are and how aggressive protectionist policies can lead to a vicious cycle that harms all involved.
Our Investment Philosophy in a Tariff-Influenced Environment
We like to consistently emphasizes the importance of a strategic and unemotional approach to portfolio management. Discussions and actions regarding tariffs, and the potential for resulting trade disputes, can generate significant market volatility. While short-term rallies or corrections linked to tariff news may capture headlines, they often occur against a backdrop of heightened uncertainty.
Our strategic rationale remains centered on:
- Disciplined Decision-Making: We do not react impulsively to daily headlines, including those concerning trade policy. Instead, we adhere to our disciplined process, making data-driven adjustments that align with your long-term financial goals and risk tolerance.
- Proactive Risk Management: Tariffs can introduce complexity and impact corporate earnings, especially for companies with global supply chains or significant international trade exposure. Our approach involves rigorous analysis to understand how such macroeconomic developments might influence different sectors and individual holdings over the long term, enabling us to manage risk effectively.
- Strategic Allocation and Diversification: Understanding the potential sector-specific impacts of tariffs underscores the importance of broad diversification. Our systematic investment process emphasizes maintaining sector allocations aligned with long-term opportunities, rather than making drastic shifts based on short-term trade headlines. This helps buffer portfolios against concentrated risks that can arise from specific tariff impositions or retaliations.
Looking Ahead
As we continue through the summer months, the investment landscape will undoubtedly remain dynamic, influenced by ongoing geopolitical developments, evolving central bank policies, and corporate earnings. Trade policy, including tariffs, will continue to be a notable factor in this environment.
We remain committed to our disciplined and systematic investment process. By focusing on data-driven indicators, maintaining strategic asset allocations, and taking an unemotional approach, we aim to navigate the current environment while positioning your portfolio for future growth.
As always, we encourage you to reach out to your advisor with any questions or to discuss how your portfolio is positioned for today’s evolving market.
Important Disclosures
This communication is for informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security. Strategic Advisory Partners (“SAP”) is a registered investment advisor. Registration does not imply a certain level of skill or training.
Past performance is not indicative of future results. No investment strategy, including trend following, can guarantee profits or protect against losses. Market indices mentioned are unmanaged and cannot be invested in directly. Index performance does not reflect transaction costs, fees, or expenses.
Forward-looking statements, including projections of market performance, earnings growth, Federal Reserve actions, and economic conditions, are based on various assumptions and beliefs that may not prove to be accurate. These statements should not be relied upon for making investment decisions.
Investment decisions should be based on an individual’s own goals, time horizon, and risk tolerance. Diversification and asset allocation do not ensure a profit or protect against loss.
This material has been prepared from sources believed to be reliable but is not guaranteed as to accuracy or completeness. This information may change at any time based on market or other conditions.
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