Market Update - Key take-aways from our webcast: Liberation Day and market turmoil – implications for investors

Highlights: Our webcast was timed to take place just before the reciprocal tariffs come into force, on 9 April. However, markets are unlikely to get much clarity even after that date as countries now consider retaliation or negotiation, which could lead to more tariff changes. Economic uncertainty will last even longer as businesses and consumers try to assess the impact on them, consider how to react and may postpone investment and consumption decisions. The Fed meanwhile is in a bind as it may have to react to slower growth and market turmoil, but inflation concerns complicate any decision to ease policy. When considering what could stem the market correction, the sharp fall in valuations and positioning adjustment we have already seen are not by themselves enough to put a bottom under markets. So investors will continue to watch the very busy newsflow, reduce concentrated bets, diversify across asset classes and into international markets. An active multi-asset strategy with a focus on quality, including gold, bonds and hedge funds makes sense.

• The objectives of the tariffs are manifold, including the creation or protection of US jobs, the wish to bring US borrowing costs down and get better access for US companies to foreign markets. These ambitious objectives suggest that the government is willing to go through a period of uncertainty before there is any substantial easing of the tariffs
• As a result, it is not surprising that markets now attach a good chance of negative US economic growth for one or even two quarters. Economists don’t want to make too many assumptions, but they will ultimately be forced to downgrade growth. Equity analysts will do the same, when companies start to comment on the negative impact to their business and their confidence
• We think that US growth and US earnings will be more negatively affected than in most other countries, as the broad-based tariffs make almost all imported inputs more expensive for US firms. That either puts more pressure on inflation (and therefore consumption) or on corporate margins than in other countries. We thus expect investors to continue their rotation into other markets, but without adding overall exposure till markets stabilise more
• European and Asian nations will try to increase trade with other trading partners outside of the US and stimulate local consumption, so we favour domestically oriented stocks there. Given lower inflation pressures than in the US, we expect to see easing of monetary policy, supporting high quality bonds