Carillon ClariVest Capital Appreciation Fund Q2 2025 Commentary: Navigating Market Volatility

The Carillon ClariVest Capital Appreciation Fund Q2 2025 Commentary discusses the impact of U.S. tariffs on global equities, which were initially negatively affected but later relieved by a more favorable outcome. The fund's portfolio was positioned to take advantage of the market volatility, with a focus on high-quality companies in the consumer, healthcare, and technology sectors.

The Carillon ClariVest Capital Appreciation Fund's Q2 2025 Commentary highlights the significant impact of U.S. tariffs on global equities, initially causing market volatility before a more favorable outcome. The fund's portfolio was strategically positioned to capitalize on this volatility, focusing on high-quality companies in the consumer, healthcare, and technology sectors.

According to Brian Coulton, Chief Economist at Fitch Ratings, the world’s economy is facing a sharp slowdown due to the U.S. tariff shock, which has significantly increased the U.S. Effective Tariff Rate (U.S. ETR) [1]. This rate has risen from around 2.5 percent in 2024 to a projected 15-to-20-percent range, marking the highest level since the early 1930s. Fitch Ratings expects global economic growth to slow to 2.2 percent in both 2025 and 2026, down from 2.9 percent in 2024 [1].

The U.S. economy is expected to slow sharply this year to 1.5 percent from 2.8 percent in 2024. Inflation will rise as tariff increases are passed through to consumer prices, leading to a slowdown in real-wage and household-income growth rates. This will weigh on consumer spending, which has already experienced a notable slowdown in the first five months of the year [1].

China, despite the de-escalation in trade tensions, still faces a substantial increase in U.S. tariff rates. Fitch estimates that the U.S. ETR on Chinese imports has risen to 41 percent, up from 11 percent in 2024 [1]. This has led to a 16 percent year-over-year (y/y) decline in exports to the U.S. in June. China has aggressively loosened its fiscal policy and eased credit and monetary policies to mitigate the impact of the tariff shock, but domestic-consumption growth remains weak [1].

US tariff hikes have also negatively affected the struggling eurozone economy. The European Union (EU) is set to face a blanket ETR of 15 percent on exports of goods to the United States, its most important export market, accounting for 21 percent of extra-EU goods exports [1]. Eurozone growth was less than 1 percent last year and is expected to slow further to 0.8 percent this year.

The US tariff shock has been a major driver of volatility in financial markets in 2025. The US equity market fell by 12 percent over four days following the April 2 reciprocal-tariff announcement. While it subsequently recovered, the broader adverse impact on US financial-asset prices is evident. The US dollar has depreciated by 7 percent against a broad basket of competitor currencies and by almost 10 percent against other reserve currencies [1].

Johnson & Johnson (JNJ) has responded to the potential drug import tariffs proposed by the Trump administration by investing $2 billion in its North Carolina facilities, expanding its U.S. manufacturing operations. This move aligns with similar investments by other major pharmaceutical companies, including Eli Lilly (LLY) and AstraZeneca (AZN) [2].

The Federal Reserve (the Fed) is likely to remain on the sidelines for a while, despite slowing US growth. The tariff shock is expected to boost inflation later this year, and this could be amplified somewhat by the weakening dollar. The ECB is expected to cut the deposit rate again in September to a below-neutral 1.75 percent [1].

The Carillon ClariVest Capital Appreciation Fund's strategy of focusing on high-quality companies in the consumer, healthcare, and technology sectors appears to have been effective in navigating the market volatility caused by U.S. tariffs. The fund's ability to adapt to changing market conditions is a testament to the importance of strategic positioning in times of uncertainty.

References:
[1] https://internationalbanker.com/finance/world-economy-to-slow-sharply-in-wake-of-us-tariff-shock/
[2] https://www.benzinga.com/news/health-care/25/08/47276660/jj-commits-2-billion-to-us-manufacturing-expansion-amid-threat-of-drug-tariffs