Liberation Day – Trump Tariffs Announced
On 2nd April the US President, Donald Trump, announced wide ranging tariffs which surprised investment markets due to both their magnitude and variability. These tariffs are in addition to previously announced tariffs impacting countries such as China, Canada and Mexico. The Trump administration’s motivation for tariffs include:
A move towards the re-industrialisation of the United States.
Addressing persistent deficits with trade partners and a move to make the United States more self-reliant.
A negotiating tool to extract wider ranging concessions from trading partners.
A revenue raising exercise to fund the continuation of “Trump tax cuts”
Investment markets reacted negatively to the announcement as investors quickly moved to a “risk-off” stance whilst they attempted to quantify the risks of the Trump tariffs and implications for both investment markets and the economy.
The table below incorporates market moves up until 4th April 2025. Whilst there has been a significant drop in equity markets in calendar year to date 2025, the medium to longer term numbers dating from end of 2022 provide some perspective noting that many commentators at the beginning of the year had noted markets, particularly the US, were somewhat fully valued.
*Source Bloomberg
Similarly, bond market movements have been significant as shown in the table below. Noting that as bond yields go up, bond prices come down and vice versa. The bond market is starting to price further rate cuts.
*Source Bloomberg
Investment Markets Impact
We have seen a rapid repricing of equities and bonds post the announcement of the Trump tariffs last week. The difficulty for investors in the current environment is accurately re-pricing stocks and bonds to reflect the changing risk environment. There is a high degree of uncertainty on the path forward for the world economy. Key areas of focus right now are:
What is the level of commitment by the Trump administration to implement the announced tariffs?
Will the announced levels of tariffs be softened after negotiations with the impacted countries?
What counter measures will be deployed by impacted countries in response to the announced tariffs?
Is there a level where financial markets reach which will be a catalyst for the Trump administration to re-think their tariff policy?
What is the appropriate price-to-earnings multiple to value companies given earnings uncertainty?
To what extent will company earnings be impacted by the change in policy?
Given the level of uncertainty, it is not surprising investors are de-risking via selling and reducing skews. Valuations are becoming more attractive for a number of companies, particularly those who aren’t directly impacted by changes to tariff policy. However, as we have entered a period of heightened uncertainty, companies are likely to be reluctant to give earnings guidance in the upcoming reporting season given prevailing volatility.
Conclusion
The Trump tariffs are unprecedented, and the economic backdrop is uncertain. Investment markets are in the process of re-pricing risk to reflect this uncertainty. We are continuing to analyse the situation and its impact on asset valuations as well as assessing the likelihood of the tariffs remaining in place. As always, we are paying close attention to the impact on your portfolio and will continue to monitor the situation and keep you informed. In the current environment it is important to be alert and not alarmed.
Warning:
The information in this email and any attachments to it is confidential and may be privileged and unless you are the intended recipient, you are not authorised to disseminate, copy, retain or rely on this communication as specific advice but general in nature only. If you have received this communication in error, please notify me as soon as possible. The Trustee for The Plus Seven Financial Management Trust, AFS Representative Number 001007915, is a corporate authorised representative of Personal Financial Services ABN 26 098 725 145, Australian Financial Services Licence Number 234459. Disclaimer This email does not necessarily consider your personal circumstances and is general advice only. We cannot guarantee that this email is free from viruses or other defect. We take no responsibility for misdirection, corruption or unauthorised use of email communications, nor for any damage that may be caused as a result of transmitting or receiving an email communication.