Navigating Trump’s Tariffs
It has been 30 days since ‘Liberation Day’ – and it feels like an entire presidential term of events has been crammed into that time.
Since Trump appeared in the White House Rose Garden after markets closed on 2nd April, brandishing boards that displayed eye-watering ‘reciprocal tariff’ levels and gleefully upending the post-WWII international order – of which the US was itself the principal architect – markets have swung wildly between steep losses and exuberant gains.
- Between 2nd and 8th April, the S&P 500 dropped by -12.14%, with the falls not limited to the US – as the S&P Euro Plus Index also fell by -12.16% between 2nd and 9th April.
- Equities are volatile though, and large falls are not historically unusual. More concerning for investors was a dramatic surge in US government bond yields (indicating large selling pressure), as the 10yr yield moved from 4.009% to 4.494% from 4th – 11th
- The situation evoked memories of the ‘death spiral’ triggered by Liz Truss’s mini-budget in October 2022, which forced the Bank of England to intervene and provide liquidity to avert a full-scale financial crisis. With this episode (and Truss’s subsequent resignation) still vivid in investors’ minds, Trump made a notable partial U-turn on 9th April, announcing a 90-day pause in tariff implementation.
- In a rare acknowledgement that his policy shift was driven by external factors, he remarked that bond markets were ‘getting yippy’, citing this as the primary reason for the reversal.
- S&P 500 promptly surged +9.52%, its third highest one-day gain since WWII (the other two coming in the midst of the GFC in 2008).
Not content with giving investors serious palpitations on the tariff front – Trump also spent the month flirting with firing Fed Chair Jerome Powell, calling him a ‘major loser’ whose ‘termination cannot come fast enough’. After markets again sold off, Trump once again reversed course on 22nd April – stating he had ‘no intention’ of firing Powell. Since market close on 21st April, the S&P 500 has risen a further +8.65% – with the index now only -1.18% down from close on 2nd April (minutes before the tariff announcements).
So, panic over? Everything back to normal? Assumedly the US can now reclaim its place as the only game in town?
Maybe. Maybe not. Seasoned long-term investors will likely dismiss all of this as mere ‘noise’, confident that, over time, their perspective will be vindicated. Over the short and medium term, though, the argument becomes more nuanced. Trump’s actions have caused investors to hesitate, with many now looking towards other markets. There are strong tailwinds supporting equities across much of Europe and Asia, while the US Dollar Index has fallen by 7.95% since the start of the year. At the same time, the previously steady US Treasuries have experienced significant volatility. Together, these factors indicate that capital is no longer flowing into US assets as freely as it once did.
Careful portfolio management will be paramount in the coming months and years, with it being imperative not to panic and keep an eye on opportunities over the medium and long term. Many investors panicked in the days following 2nd April – and those same investors would have lost out on some excellent gains. Now more than ever it pays to cut out the noise, to not play the hero, and (most of all) – to stay invested.
