Update Equity: Tariff rollercoaster
Following the implementation of the US import tariffs, markets continued their slide in the beginning of the week. As a consequence, the S&P 500 entered into bear market territory. It was down more than 20% year-to-date, effectively washing away the complete positive returns from 2024.
The key question was how the rest of the world would respond to the tariffs. Would they consider the tariffs as a starting point for negotiations? Or would they see them as a reason to retaliate?
When China immediately retaliated, the market situation deteriorated. China announced a matching 34% tariff on US goods imported into China. To make matters worse, the US retaliated by announcing a counter tariff of over 100%. On top of that, US President Donald Trump pre-announced his intention to introduce a significant import tariff on pharmaceutical products. In other words, the contours of a full trade war were unfolding.
Trump’s unexpected announcement on Wednesday, which called for a 90-day pause on reciprocal tariffs for certain countries while keeping the 10% base tariff, exemplifies the unpredictable nature of the situation. This news caused a sharp positive reversal in the markets, especially within US tech and the magnificent seven, which had been impacted the most during the tariff turmoil. However, it is noteworthy that this pause did not include China, leading most Asian markets to show a more muted positive reaction.
This tariff rollercoaster caused uncertainty for both consumer and producer confidence. After a solid start to the year, markets have broken down. Now, following the recent partial rebound, they may enter into a ‘wait and see’ mode. Investors are looking for evidence of how recent events have affected, or might affect, global growth and company earnings. The earnings season will soon begin, led by the US banks. We anticipate that the first quarter company results may not yet show significant impact from the tariff turmoil. However, investors will focus on the guidance provided - or perhaps the lack of it - for the coming quarters.
In all, the US tariff situation remains uncertain. Therefore, we expect volatility to persist for some time. This volatility is likely to continue until the trade negotiations progress further. Additionally, we need more clarity on how global growth and company earnings will be impacted.