The US economy entered 2025 with a strong sense of optimism, fuelled by President Trump’s business friendly agenda of deregulation and tax cuts. However, the market weakened over March and February, as investors began to reflect concerns about the potential scale and scope of US tariffs on the rest of the world.
On the 2nd of April, President Trump announced his long-awaited ‘Liberation Day’, announcing sweeping and large-scale tariffs on all imports across its trading partners, raising the effective tariff rate to the highest level since the 1930s.
The revealed levies were substantially higher than the market had expected, resulting in a significant market sell-off across all regions. It was not only the shares of companies that nosedived; US government bonds and the dollar sold off in unison.
Within days, executives at the world’s largest companies were raising concerns with the White House on how tariffs would affect their businesses, including several of Trump’s financial supporters. Then on the 9th of April, less than 24 hours after they came into effect, Trump announced a 90–day pause on these so-called ‘reciprocal tariffs’. Instead, all countries would be subject to a universal ‘baseline’ tariff of 10%, to which markets breathed a collective sigh of relief.
That is, except for China where the rate remained at 145% after a series of tit–for–tat increases. China was the only country to retaliate by raising its own tariff rates, which created an effective embargo between the two countries.
Since then, we have seen several countries enter negotiations with the US with commitments to buy a greater volume of US goods, reduce their own tariff rates and engage in other ways. Negotiations have even begun with China, all of which has seen global markets recover.
Investors are now focusing on the damage that has been done to both consumer and business confidence and the potential of this to affect real economic activity such as spending, investment, and hiring. This represents the downside risk for markets.
Meanwhile, early signs of resilient consumer spending, supportive government policy through deregulation and tax cuts, and new trade pacts are helping to reduce the downside or even make the upside case for corporate earnings.
With the outlook for the US and global economy uncertain, we expect divergence in performance across markets as the fiscal and monetary responses to support domestic activity vary.
Overall, we think positioning portfolios with limited active sector weights is the most prudent approach. We do hold a modest overweight to European and UK equities, reflecting our sense of caution in terms of US assets for the time being. We have also looked to diversify portfolios through inclusion of highly rated euro denominated bonds. We’re closely watching the evolving landscape and will adjust portfolios as opportunities appear.
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Please remember, this content is provided for information purposes only. Investment involves risk. Past performance is not a guarantee or indication of future results. Investment return and the principal value of an investment may go up or down and may result in the loss of the amount originally invested. All investors should seek professional advice prior to any investment decision, to determine the risks associated with the investment and its suitability.
