"Be fearful when others are greedy and greedy when others are fearful." - Warren Buffett

Another bruising day on Wall Street sets the markets up for their fourth weekly loss in a row. During times like these, it is important to keep the Oracle of Omaha's advice in mind.

President Trump's trade war has certainly turned the investor playbook on its head. The U.S. economy and its stock market have been the envy of the world this past decade, but all that suddenly looks vulnerable because of the expected impact of tariffs on consumer spending. Market fears were amplified when President Trump, during a Sunday news interview, refused to rule out that the U.S. could enter a recession in 2025. At market close yesterday, the S&P is down approximately 5% year to date, with a drop of 2.7% yesterday alone. It was the worst day since December 16th, when the S&P fell 3%. Some indices are performing significantly worse (such as the Nasdaq which is down 10% YTD) while others are holding up fairly well (health care sector is up 5% YTD).

The flurry of tariff headlines is weighing on the stock market Investors trying to keep up with President Trump's decisions on import duties have their head on a swivel. The response of affected trade partners - Canada, Mexico and China -- is also filling the news cycle in a negative manner. I expect tariffs will be a dominant story for the stock market for the foreseeable future. Trump's comments will swing markets, and corporate executives will talk about the potential impact of tariffs during their companies' investor conferences.

It is important to put the current sell-off in historical context. Corrections (defined as market declines of 10% or more) occur almost every two years. Since World War II, there have been 24 corrections with an average drop of 14%. These corrections take a few months to recover. Bear markets (defined as declines of 20% or more) are rare, happening about every six years on average. While the current decline is nearing correction territory, historical trends suggest that recovery could be swift if it remains a correction rather than escalating into a bear market. The biggest economic data of the week is the February consumer price index (CPI) on Wednesday followed by the February producer price index (PPI) on Thursday. These reports have the potential to stabilize the markets.

Despite the muddy backdrop, and as glum as the past few weeks have been, we need to take a step back and analyze whether the market is acting rationally. For example, Tesla stock (which we do not directly own in the portfolio) is down a staggering 45% YTD; however, the credit default swaps for Tesla bonds have barely budged. The CBOE Volatility Index (VIX), known as Wall Street's "fear gauge," has spiked reflecting heightened investor anxiety. In short, market participants are liquidating equity assets regardless of price, yet the bond market is indicating that companies are fine. This leads us to the conclusion that it is appropriate to stay the course at this time. Nevertheless, we will look for dislocations within our portfolio that are worth capitalizing on - and identify positions where it makes sense to reduce exposure. We also want to look for areas to obtain potential tax benefits. Unfortunately, given the market's palpable fear, very few positions are escaping the current downdraft.

Today there will be a White House business roundtable, and this will provide corporate executives an opportunity to discuss with President Trump the tariff concerns they are experiencing. President Trump famously said during his first term that he did not want to be known as a "Herbert Hoover" (who was president during the Great Depression). At some point President Trump may react to corporate executives and congressmen within his own party who are voicing concerns (last night Republican Senator Rand Paul stated: "When the markets tumble like this in response to tariffs, it pays to listen.")

One bright spot with the selloff is that interest rates across the board are significantly lower. Should markets stabilize, lower interest rates would act as a material tailwind for equities as companies can borrow at much lower rates. It also could spur housing demand. Perhaps that is President Trump's goal. We will see. For now, our plan is to remain diversified across asset classes and to encourage clients to keep some cash back to prevent overreacting to market fluctuations. Although we are not out of the woods yet, I am confident that while markets may seem broken, they are easily reparable.