Investors' Outlook: Shaken, not stirred

Shaken, not stirred

Investors faced a jolt on April 2, as US President Donald Trump unveiled sweeping reciprocal tariffs that were higher than expected, including a baseline 10 percent rate on all trading partners and a 25 percent levy on all foreign-made automobiles, widening his trade offensive. While the move offered some long-awaited details, it did little to reassure markets. With potential negotiations and retaliatory measures likely ahead, volatility is poised to remain a backdrop for markets for the foreseeable future.

Investors had already faced a period of uncertainty in the run-up to what Trump dubbed “Liberation Day”. The S&P 500 Index slid into correction territory mid-March, wiping out trillions in market value, as recession fears crept back into the conversation and market participants speculated how Trump’s tariffs might bleed into the real economy and influence economic growth, inflation expectations, and corporate earnings. The OECD¹ revised global gross domestic product (GDP) growth downward, citing trade wars as a major drag. Businesses have hesitated to place orders without clarity on tariffs, while economic and small business optimism (initially buoyed by Trump’s election) has waned.

Markets have also experienced a “Great Rotation” into European and Asian assets as investors seek opportunities beyond the US. European markets have been bolstered by renewed enthusiasm amid government plans to boost defense and infrastructure spending, though we believe long-term growth remains constrained by structural issues. While stimulus measures provide short-term support, sustained growth potential hinges on deeper supply-side reforms, like labor cost reforms, rather than just debt-driven spending. Similarly, China is making a concerted effort to revive retail spending and stabilize its housing market, where some 60 percent of household wealth is estimated to be tied to real estate². We believe a housing recovery is hence a prerequisite for a meaningful rebound in consumer spending.

Volatility is unlikely to fade this year. Markets are poised to remain hypersensitive, reacting nervously to any shifts in economic data or policy wording. Even as we believe the announced tariffs are part of a negotiation tactic, given the murky visibility, the Multi Asset Boutique’s Investment Committee has decided to shift allocations to cash while going neutral on US equities, bracing for what could be at least two quarters of economic soul-searching.

In this Investors’ Outlook, we explore potential scenarios in a Russia-Ukraine ceasefire, keep an eye on gold prices, and decode market trends.

Shaken? Yes. But we believe that for those who adapt, actively diversify, and think more long-term, there may be no reason to be stirred.

 

1. The Organization for Economic Cooperation and Development, an intergovernmental organization that promotes policies to improve economic and social well-being through research, collaboration, and policy recommendations among its 38 member countries.
2. Source: World Economic Forum article, published September 14, 2023. https://www.weforum.org/stories/2023/09/china-real-estate-slump/

 

Multi Asset Boutique

3 Apr 2025 Market Update

No spring truce in trade wars

Donald Trump imposes steeper-than expected reciprocal tariffs on US trading partners. The Multi Asset Boutique neutralizes its US equity overweight in light of the uncertainty.

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