Donald Trump’s dramatic about-face on tariffs last night has had an enormous impact on markets, US indices ending their latest session significantly higher, while Asian and European markets have rallied in early trading this morning.
The US president has left the 10% universal baseline tariff in place for all but China, where the rate has increased to 125% after the Chinese government implemented its own 84% reciprocal tariffs earlier this week.
US indices rejoiced, with the S&P 500 up 9.5%, its best day since 2008, while the Nasdaq Composite rose 12.2%, its biggest one-day gain since 2001.
In Europe, the FTSE 100 was up 4% at the time of writing, while the German DAX gained 5.3% and the French CAC 40 had jumped 5.1%.
But not all were positive about the news. Marcus Brookes, chief investment officer at Quilter Investors, said Trump is “gaining a reputation now for flip-flopping on tariffs” and noted the latest announcement fails to address uncertainty as it is just a 90-day pause.
“Trump has likely stepped in before he would have had his hand forced by the Federal Reserve, a humiliation he clearly wants to avoid. Even so, the damage is arguably done for the US,” he said.
“Many consumers and businesses cannot plan with any sort of confidence just now and may see a recession hit regardless. Spending and investment could be pared back and would be completely counter to everything Trump said he wanted to achieve.”
Andrew Craig, co-head of the Investment Insights Centre at BNP Paribas Asset Management, said that the “last-minute reprieve from the White House” was because the previously imposed tariffs were “unsustainable economically, financially and politically for the US president”.
However, he warned that “negative economic consequences are still expected globally, most notably for the United States itself”, despite the latest backtrack from the president.
Rebekah McMillan, associate portfolio manager at Neuberger Berman, said the policy reversal came on the back of “mounting economic pressures”, which led to market turmoil that ultimately led to “financial stability concerns”.
“While markets are now scrambling to recalibrate their exposure to cyclicality after aggressive sell-offs, underlying concerns persist with US GDP growth still projected to be materially lower than pre-tariff increases,” she noted.
AJ Bell investment director Russ Mould noted that not all asset classes remain unconcerned by further potential trouble, even if equities have rebounded.
Notably, long-term US government debt yields remain elevated after surging following ‘Liberation Day’ last week, although they have come back from their highs, he said.
The 10-year US Treasury yield ended the day slightly higher at 4.34%, while the 30-year yield fell 0.43 basis points to 4.73%.
“This shows there is still lingering concern about US trade policy and, while the 90-day pause is welcome news for stocks, the lack of long-term clarity may become more of an issue as time goes on.”
To combat the recent market turmoil, BNP Paribas Asset Management’s equity portfolios have been rotating capital towards companies with strong balance sheets, minimum exposure to tariffs, domestic content manufacturing and supply chains and solid revenue backlogs, Craig said.
“We have also shifted positioning in equity portfolios to favour large-cap companies with so-called long-cycle exposure,” he added.
On the multi-asset side, the firm remains “broadly neutral” on equities and continues to be overweight gold and “awaits more clarity on US policy before increasing fixed income risk positions”.
Meanwhile, bond specialists expect the US Federal Reserve to keep interest rates on hold, looking to manage the competing risks of higher inflation relative to weaker growth, but think bond yields will fall as the “negative impact on US growth becomes apparent”.
However, investing through these volatile times is difficult, as Trustnet wrote earlier today. Research shows investors are better off staying invested and riding out the wave.
Joe Wiggins, investment research director at St. James’s Place, said: “Periods of heightened uncertainty and market noise are incredibly challenging for long-term investors, often not because of the issue that is the focus of attention but rather our behavioural response to it. When under stress, investors tend to make decisions that relieve short-term anxiety, often at the expense of their long-run objectives.
“Attempting to make prudent investment decisions related to the recent announcement of US tariffs is fraught with difficulty. Untangling the economic and market consequences of an incredibly complex, and still nascent, situation is extremely unlikely to be a productive activity.”
Brookes added: “What happens after this, or during for that matter, is anyone’s guess and as such investors shouldn’t get used to the sugar high markets have reacted with.
“These sorts of market issues require calm heads and cool hands, so for investors, patience is key. Drip feeding money into investments is the best way to ride out this period of volatility and ensure your portfolio is in good shape once things settle down again.”