Market Movements - Trump's Tariffs

Investors have largely enjoyed an easy run in markets since mid-2023. They have enjoyed strong positive returns and, at the start of 2025, this positive momentum initially continued. However, with increased policy uncertainty in the US and questions over the value of large technology stocks, volatility increased from the middle of February and global equities dropped back from their all-time highs.

With market sentiment already on a downward trend, Donald Trump’s recent announcement of a 10% universal tariff and “reciprocal” tariffs on more than 25 of the US’s biggest trading partners have added additional downward pressure to stock markets. Accounting for existing tariffs, Goldman Sachs estimates that these announcements will impose a weighted average tariff rate of 18.3% on all US trade partners.

What the long-term impact will be is difficult to predict and will depend on key factors such as how long these tariffs are in place, how US trading partners react, any changes to tariffs following negotiations, and finally, fiscal and monetary responses from governments and central banks around the world.
Regardless, the initial impact on markets has been significant and investors may feel (understandably) uncomfortable. We have written in the past how phases of heightened volatility feel particularly bad after calmer periods – Click Here.

Our investment strategies have not been immune to the recent volatility; however, our recent rebalancing exercise, regional equity exposure, and asset allocation have mitigated some of the downward movements.

Firstly, towards the end of January, we instructed an ad-hoc rebalance of our investment strategies as we felt equity markets (particularly the US) had performed well, and it made sense to take profits. Additionally, this exercise ensured that each strategy was brought back in line with its intended risk exposure. Using our TM2 investment strategy as an example, this exercise generated a 0.3% improvement in performance.

Secondly, we implement a valuation-based approach to the regional equity exposure within our investment strategies. Though we use the global equity market as our starting point, we then adjust positioning to implement underweight positions in equity regions that are more expensive and then overweight in cheaper regions. So far this year, this approach has led to an outperformance of nearly 3% in our equity exposure when compared to the world stock market (as measured by the MSCI World Index).

Thirdly, our investment strategies are well-diversified and comprise of different asset classes including equities, fixed income, and alternatives. During more volatile periods, positions in fixed income and alternatives provide valuable downside protection. This is particularly true within fixed income, where a majority of the allocation is made up of high-quality government bonds, which have rallied over the last few days.

It is also important to put these stock market moves in context. The chart below shows the maximum intra-year decline (red dots) alongside the calendar-year return (blue bars) for the world index.

For some, it might feel different this time. However, every market sell-off feels that way in real time. The financial crisis, European debt crisis, global pandemic, Russia’s invasion of Ukraine, and all the other major events before them were undoubtedly unprecedented. But the only difference between those events and today’s is that we know how they ended. They all turned out to be amazing buying opportunities, but did not feel that way at the time.

History shows that the current drawdown (the fall from the highest point to the lowest point) of minus 16% is quite normal, even healthy. Over the last 30 years, on average, we have experienced a similar drawdown in one out of every five years. In fact, the average drawdown in any given year is minus 12%, while the average annual return over the same period is 9%. So, though these periods feel unsettling, they are very normal and the cost of entry to benefit from long-term returns.

Written by Jonty Brooks

General Disclosures: This article is based on current public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates and forecasts contained herein are as of the date hereof and are subject to change without prior notification. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur.