With the US having recently implemented tariffs on a significant scale to address trade deficits, which the new administration views as disadvantaging the US economy, it’s important to understand the impact this could have on the markets. The tariffs appear to be calculated based on goods trade deficits only, and in some cases, they are more punitive than expected, considering the US is a significant exporter of services.
Market Response
The surprising nature of these tariff calculations has created additional uncertainty in markets, beyond what has become the norm in recent weeks. Here are some key observations:
- Equity Markets: Most regions are experiencing sell-offs, although the regional dispersion seen in recent months remains intact. US markets are underperforming, with technology-led indices suffering the most acutely based on current futures pricing.
- Bond Yields: Bond yields have fallen as markets start to price in additional risk of recession, which could necessitate further cuts to interest rates. Currently, the inflationary impact of tariffs appears to be a secondary factor for bond markets.
Outlook
While short-term volatility is evident, it’s important to consider the long-term perspective. Over longer time horizons, companies and markets adapt, which can mean that the direct impact of specific issues, such as tariffs, becomes less noticeable in portfolio-level returns.
Maintaining a well-diversified portfolio is crucial during times of market volatility, increased dispersion, or trend reversals. PM+M Financial Planning has always placed significant emphasis on diversification and will continue to do so, even during more challenging periods for equity markets, we have been pleased with how our portfolios have responded. Throughout the first quarter, we have seen the benefits of diversification, with our equity exposure in Europe, China, and the UK outperforming the US.
We will continue to monitor market developments for risks and opportunities and stand ready to act should we see something that warrants a change in positioning.
Get in touch
If you would like to discuss your investments in more detail, or require tailored advice specific to your situation, please get in touch by emailing financialplanning@pmm.co.uk or by calling 01254 679131.
The value of investments can fall as well as rise. You may not get back what you invest.
The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction.
