Navigating Tariffs, Volatility, and a Slowing Economy

The markets face a challenging path as tariff policies intensify economic uncertainty, yet opportunities persist for discerning investors.

KEY POINTS

Navigating Uncertainty as Trade Tensions Rise and Market Volatility Grows

• Tariffs Intensify: The rollout of the Trump administration’s retaliatory tariffs escalate global trade tensions across all sectors and industries.
• Markets in Turmoil: Increased volatility is likely to persist as policy uncertainty rises. Investors should look through drawdowns for strategic opportunities to invest across asset classes.
• US Economy Softening: The US economy shows early signs of slowing growth which are being amplified by tariff policies.
• Focus on Quality: Focus on credit selectivity and resilient sectors, use alternatives and less liquid investments to provide hedging and diversification from tariff and policy headwinds. Be cautious of blind pool risk in private markets, especially where company input costs may be rising.
• Stay Disciplined: Maintain investment discipline despite short-term volatility. Staying invested typically delivers better long-term results than attempting to time the market.

Exhibit 1:
Key Markets Performance through April 4, 2025

Typically, our quarterly review reflects on the prior quarter’s market and economic trends while offering forward-looking insights. However, recent developments demand more immediate focus.

The global economy now stands at a crossroads, exacerbated by the recent escalation of tariff policies from the Trump administration. The implications extend beyond short-term market volatility; these tariffs fundamentally challenge decades of globalization and established business practices. Companies reliant on international trade, supply chains, and global markets face significant structural risks.

The Trump administration’s announcement of aggressive tariff policies has significantly shifted market sentiment, and our own outlook, from optimism to cautious anxiety. Markets reacted swiftly and sharply to these developments, with the two-day performance following Trump’s “Liberation Day” announcement ranking among the worst in S&P 500 history. This dramatic pullback places the reaction alongside other major historical events that triggered steep short-term losses, highlighting the lack of investor confidence in the face of unpredictable policy shifts.

Exhibit 2:
Major Market Performance through April 4, 2025

Indicators such as declining industrial production, falling CEO confidence, and moderating consumer spending growth underscore a broader economic slowdown, further amplified by these escalating trade conflicts. While job growth remains healthy and housing activity is improving, consumer spending is slowing. As we’ve noted previously, the U.S. consumer has been the key driver of U.S. economic outperformance.

The new wave of tariffs will likely weaken this pillar of strength, compounding the risk of a broader economic slowdown. Additionally, there is now growing concern around the magnitude of tariff-related disruptions to corporate earnings, particularly in sectors such as technology, industrials, and consumer discretionary, which have high exposure to global supply chains.

Exhibit 3:
Consumer Sentiment and CEO Confidence

Given these conditions, investors should consider proactively reviewing their portfolios to ensure adequate diversification. At the same time investors should be looking at markets and knee-jerk moments of volatility as an opportunity capitalize on dislocations and put capital to work. For those without additional dry powder we suggest working with your advisor to review your asset allocation in more detail.

Market volatility is likely here to stay, at least in the short term. However, it’s important to remain steadfast—history repeatedly demonstrates that consistent investment, even through turbulent markets, generally outperforms reactive timing strategies. For instance, markets typically experience a drawdown of 5% or more at least once each year, yet historically, markets have delivered positive returns approximately 75% of the time in the 12 months following a bear market bottom.

Please read important disclosures here.