Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
Global Head of Investment Strategy
Trump argues these aggressive tariffs are essential to protect US industries from what he terms decades of being “ripped off” by trading partners. He has framed these tariffs as a fair exchange: "They do it to us, we do it to them."
Countries with significant trade surpluses with the US face steep hikes, with especially harsh penalties hitting Asia. Vietnam will now face a staggering 46% tariff rate, and Taiwan and Thailand 32% and 36%, respectively. The European Union is staring at a 20% tariff – a figure that sparked immediate concerns and warnings of retaliation.
Notably, Canada and Mexico escaped the reciprocal tariffs, retaining exemptions under USMCA rules, although existing levies remain on goods tied to issues like drug trafficking and immigration.
Markets, caught off guard by the severity of Trump’s tariffs, reacted dramatically. US stock futures plummeted, with the likes of Apple, Amazon, and Nike declining more than 6% as fears intensified that disrupted global supply chains would hit corporate profits. Asian markets mirrored this uncertainty, with Japan's Topix index slumping 3.8%. European stock markets are painted in red as well.
Gold soared to a record high above USD 3,150 per ounce, reflecting investors' scramble for safe assets. Meanwhile, US treasury yields dropped sharply as bonds rallied – another clear indication of heightened investor caution.
As a retail investor, the immediate reaction might be to panic and consider fleeing to safe havens or cash. However, now is exactly the time for clear, calm, and rational decision-making. Here's how you might consider responding:
1. Stay calm and stick to your plan
While the volatility can feel unnerving, historically, sudden market downturns have eventually recovered. Avoid making emotional decisions—stick to your long-term investment strategy.
2. Diversify more than ever
If you haven’t already diversified, now is a perfect reminder to avoid putting all your eggs in one basket. Diversifying across industries, regions, and asset classes can help buffer your portfolio against trade policy shocks.
3. Seize opportunities wisely
Market volatility often creates buying opportunities. Quality companies with strong fundamentals might now be trading at attractive discounts due to broader panic selling.
4. Defensive sectors are your allies
Focus on industries less sensitive to global trade, such as healthcare, utilities, and consumer staples. These sectors often prove resilient in turbulent times.
5. Re-evaluate exposure to vulnerable Industries
Industries significantly reliant on global supply chains—such as automotive and tech—could feel sustained pressure. Consider carefully if these holdings align with your risk tolerance.
As dramatic as these announcements are, they should serve as a clear reminder to maintain discipline, diversify, and manage risk carefully. Times like these test investor resolve but also create opportunities for those who remain steady and strategic. Trump's tariffs might bring short-term disruption, but staying informed and keeping a clear, long-term perspective remains the best approach for any retail investor navigating this turbulent market environment.
Equity outlook: The high cost of global fragmentation for US portfolios
Commodity Outlook: Commodities rally despite global uncertainty
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