By John Stewart, chief investment officer at Farmers Trust Co.

Week in Review: Trump Tariff Talk

The market was certainly overdue for a correction heading in 2025 with valuations elevated and the potential for a bit of a cyclical slowdown after a government spending binge over the past few years.

Tariffs seem to be a convenient excuse for some of the recent market volatility, but over the past two weeks the markets have stabilized and even moved modestly higher.

That has coincided with additional tariff announcements coming out of the White House including a new 25% tariff announced earlier this past week on imported cars and car parts not manufactured in the U.S.

Additionally, tariffs on pharmaceuticals, aluminum, and lumber are expected in the near future with semiconductors to follow later, although exact dates remain unspecified.

Reciprocal tariffs are expected on April 2, which are essentially designed to match existing duties charged by foreign countries on U.S. goods.

There is a fair amount of debate regarding the ultimate effect of these tariffs on the economy.  Suffice it to say, there will be some winners and some losers in the battle to bring more manufacturing back to the United States. So far, anyway, however, the stock market seems to be taking a lot of the news in stride.

Albert Einstein is famous for calling compound interest the “eighth wonder of the world”, saying “he who understands, earns it; he who doesn’t, pays it.”

Compound interest or compound returns refer to the idea that if you reinvest your earnings, be it interest or dividends, you will earn a return not just on your original investment, but on the accumulated gains as well.

The more time you have to allow this process to take place, the more impressive the effects of the compounding.

For example, if you have a $10,000 investment that pays 5% interest, you will earn $500 per year, or $5,000 over the course of 10 years.  But if you reinvest the interest at the same 5%, you would earn a total of $6,289 over 10 years.

Not impressed?  Over 30 years you would more than quadruple your money with compounding at 5% versus making 2.5 times without reinvesting.

Patience and consistency are key, but compounding is a concept that all successful investors know well.

Looking Ahead: All Eyes on the Job Market

In addition to tariffs, there is some concern that cuts to government payrolls will start to weigh on the overall job market and consumer spending.

Next Friday is the all-important and widely anticipated non-farm payrolls report, otherwise known as the monthly jobs report, which will report various metrics on the labor market developments during March.

The job market also happens to be one of the most important factors in the Fed’s calculus regarding decision-making on monetary policy and interest rates.

The markets seem slightly more concerned about the growth outlook right now than the outlook for interest rates.

In other words, a really weak report would cause more concern about the economic outlook even if it means the possibility of more interest rate cuts from the Fed.

What the market likely wants is a report that is strong enough to signal that the economy is on sound footing while not so strong as to introduce fear regarding the potential for higher rates, otherwise known as Goldilocks – not too hot, not too cold, but just right.