"Tariffs Topple Stocks, No Sign of 'Trump Put'"

The market is in turmoil, and it's all thanks to the Trump administration's latest round of tariffs. The S&P 500 plummeted on Monday, continuing a three-week sell-off. The broad market index slipped 2.7%, finishing at 5,614.56. The Dow Jones Industrial Average shed 890.01 points, or 2.08%, closing at 41,911.71. The Nasdaq Composite tumbled 4% and ended at 17,468.32. It's clear that the market is feeling the heat from the new tariff policies, and investors are scrambling to figure out what it all means.



The Trump administration's second term brings with it new trade policies that could affect investors. The impact of tariff policies will vary by industry and depend on the scope, implementation, and duration of the policies. Firms with complex global supply chains, manufacturing abroad, and major exposure to revenue earning in the U.S. are most vulnerable. While we could see volatility in the short-term, our investors continue to prefer U.S. equities, and large caps, in particular. Now is a good time to consider if portfolios are appropriately diversified: we are leaning on high quality short-term bonds, higher yielding “plus” sector bonds and alternatives to manage risk.

The new administration looks to use tariffs as a key policy tool, using them to address issues such as reducing trade deficits and encouraging investments in U.S. manufacturing. The administration is expected to use tariffs to raise revenue and for leverage in negotiations that go beyond trade/investment. The scope, implementation, and duration of U.S. tariffs – and any retaliatory actions by other countries – remains highly uncertain. But there are some certainties, no matter the countries involved, products targeted or timing of tariffs: Firms with complex global supply chains, manufacturing abroad, and major exposure to revenue earning in the U.S. are the most vulnerable.

We maintain our pro-risk stance in the U.S., as outlined in our 2025 Investment Directions, and believe there are opportunities today to take advantage of the resulting security dispersion and that it will be critical to ensure that portfolios appropriately diversified. Tariffs signal global trade shift. Uncertainty around the scope and implementation of tariffs is high. What’s key for markets is how long they last: the longer they hold, the more permanent the supply chain shifts. Legal challenges could delay implementation and add to market volatility. How countries retaliate is also important – and could draw further U.S. escalation of tariffs. We believe that these actions, and their ripple effects, could dent corporate and investor confidence.

The broader implications could be larger than the direct effect, in our view. Prolonged tariffs as proposed, and how countries retaliate, could hurt growth and add to inflation, leaving the Federal Reserve limited flexibility in its policy rate decisions. In markets, we think U.S. equities could come under pressure in the next few months as investors seek additional compensation for these risks. More broadly, resilient economic growth, solid corporate earnings, potential deregulation, and the AI mega force keep us positive on a six- to 12-month tactical view. We feel that markets could eventually adjust to a new regime of tariffs if growth stays solid, and inflation contained.



The implementation of U.S. tariffs and any retaliation from trading partners is very much a fluid and evolving situation. While it is likely to create noise and stoke volatility in the broad market in the short term, it doesn’t shake our long-term conviction in fundamentally sound companies with the ability to grow their earnings across time. If anything, it confirms our focus on quality companies with pricing power. We are maintaining our portfolio positions, particularly as the policy end-game remains unclear.

The new round of tariffs targeting Canada, Mexico, and China has whipsawed financial markets in recent days as investors wrestle with the implications of rising policy uncertainty and the impact on the global economy. Assessing the potential damage to economic activity is challenging, given the rapidly changing news events. Those include on-again, off-again tariffs, a one-month reprieve for the auto industry, a pause on some tariffs against Mexico, and the likelihood that certain newly erected trade barriers are a negotiating mechanism to achieve other policy goals of the Trump administration. The unfolding narrative could, and probably will, change tomorrow.

Our Capital Strategy Research team is following the events closely, analyzing various tariff-related scenarios, how they could ultimately play out, and in what way, if at all, they may change our big-picture outlook on the markets and the economy. But we are also cognizant of the fact that — as one of our colleagues noted — sometimes you have to “turn off the models.” The standard models for analyzing the global economy are based on 40 years of data that covers a period where the direction of travel was uniformly towards greater cross-border integration, not less. Add in the high level of uncertainty and you are left with an environment where model results must be viewed with caution.

That is why we are using this four-box framework, along with extensive scenario planning, to consider a range of potential outcomes for the economy, markets, and companies. A key question for investors is whether we are at the beginning of a new structural shift in the geopolitical world order, or are we witnessing a continuation of trends that have been brewing over the past decade? The answer is probably both. Trump’s election victory represents a structural shift in how the US approaches its leadership role in the world, but it is also an extension of forces that have been in place in the US for many years and are likely to continue, in our view. That message has been delivered more forcefully in the past few days, which explains much of the market volatility seen in late February and early March.

Against this backdrop, we view the evolving tariff story in four ways:

1. Decoupling: Part of the motivation for the latest tariffs is to reduce dependence on single-source supply chains, particularly in countries such as China, where the trade war has been focused for years. This type of tariff is aimed at bringing some manufacturing activity back to the United States.
2. Rebalancing: So-called reciprocal tariffs are intended to restore balance with other trading partners, such as Europe, Japan, Mexico, and Canada. The goal here is to lower the US trade deficit and compel these countries to facilitate more balanced trade.
3. Negotiating: The Trump administration has made it clear that some tariffs are specifically meant to pressure other countries to assist with US policy goals, such as cracking down on illegal immigration and curbing the cross-border flow of illicit drugs.
4. Funding: Tariffs are seen as a way to raise revenue for the US government and potentially offset the impact of other policy goals, including tax cuts and regulatory reform.

These four motivations will have an important role in how the story plays out. For instance, tariffs that are used for negotiating purposes are unlikely to persist over long periods of time. Conversely, tariffs that are part of a larger decoupling process could be here to stay. As those issues are sorted out, the impacts on the U.S. economy and the global economy could be significant. But until we know the details and see at least some of the initial outcomes, it will be tough to reach a conclusion — beyond the obvious fact that we are navigating through a cloud of extreme uncertainty.

Our base case remains that the US economy will continue on a path of healthy growth this year, driven by solid consumer spending and business investment, which in turn are supported by strong income growth and accelerating corporate profits. We think US GDP growth for 2025 will be in the range of 2.5% to 3%. But the size and scale of recent policy moves could complicate that forecast. We have always believed that focusing on fundamental drivers of the economy, such as income and profits, is the best way to forecast activity. However, we must also acknowledge that the sheer number of geopolitical developments that have occurred in the past two months might be creating enough uncertainty that economic activity could diverge from those drivers in ways that we have not seen before. Which is why, as fundamental, bottom-up investors, it may just be time to “turn off the models” and judge the impact of these unprecedented events as they unfold.