US tariffs & portfolio performance

04/04/2025

During Wednesday evening, on what's being termed "Liberation Day", Donald Trump announced sweeping tariffs across the globe which will come into effect on Saturday and Wednesday.

Global equity markets declined sharply, driven in large part by the US, with the S&P 500 falling nearly 5% on Thursday, and the Nasdaq down 6%. The UK is holding up better, with the FTSE down only 1.5% and EuroStoxx 50 down 3.6% on Thursday.

Within fixed income, global investment grade corporate bonds have posted marginal positive performance on the week, whereas higher risk global high yield bonds sold off. Government bonds, on the other hand, rallied hard this week in what appears to be a 'flight to quality' – with investors seeking safe haven assets in times of market stress.

We are comfortable with how our portfolios are positioned, and continue to aim for long term growth through strategic asset allocation and diversification. Indeed, this approach appears to be providing some cushioning against the volatility.

We do not advise making any reactionary decisions based on this market action.

Portfolio Performance YTD (03-04-2025)

• Conservative: -1.0%
• Balanced: -2.0%
• Moderate: -3.4%
• Dynamic: -4.4%
• Adventurous: -5.0%

The MSCI All Countries World Index – quoted as a reasonable equivalent of 100% global equities – is down 8.3% YTD.

Full Analysis
During Wednesday evening, on what's being termed "Liberation Day", Donald Trump announced sweeping tariffs across the globe which will come into effect on Saturday and Wednesday. Whilst the UK will only be subject to the 10% baseline tariff, other countries have been hit by additional tariffs of as much as 50%. If maintained, these levels will have significant impacts on global trade. The World Trade Organisation responded by sharply reducing its forecasts for global trade, now predicting a 1% contraction as opposed to a 3% growth in 2025 volumes.

Without going into the details, for countries with which the US currently runs a trade surplus, an “override” of 10% has been applied; a figure which will apply to the UK as well as Australia. The average level of tariffs, some 30%, is well above the general prevailing level.

Apollo's Chief Economist Torsten Slok shared some of their estimates highlighting the impact on US GDP and inflation of tariffs and the decline in consumer and corporate sentiment:

• Average effective tariff rate: 22%
• Impact on GDP: -1.5%
• Impact on inflation: +1.5%

In the short-term, markets reacted predictably poorly to the tariff news. Global Equity markets have declined sharply, driven in large part by the US with the S&P 500 falling nearly 5% on Thursday, and the Nasdaq down 6%. The UK is holding up better, with the FTSE down only 1.5% and EuroStoxx 50 down 3.6% on Thursday.

Within fixed income, global investment grade corporate bonds have posted marginal positive performance on the week, whereas higher risk global high yield bonds sold off. Government bonds, on the other hand, rallied hard this week in what appears to be a 'flight to quality' – with investors seeking safe haven assets in times of market stress.

The US dollar, which would usually be expected to appreciate under severe tariff environments, sold off 1.9% in its worst day since November 2022.

From a portfolio perspective, investors with portfolios concentrated in US equities will have been hit hard with the market reaction. Our global style-based approach to constructing equity portfolios will have provided some diversification away from the worst hit parts of the market. For our client portfolios, it appears this approach is working, with a diversified mix of assets providing some cushioning against these market moves.

We are comfortable with how our portfolios are positioned, as we set long term strategic asset allocations with diversified portfolios. We do not advise making any reactionary decisions based on this market action.

If you have any questions or would like to discuss your portfolio in more detail, please reach out to your adviser.