Plus, thoughts on portfolio positioning, earnings results and inflation data.
“Easy is the descent to hell; all night long, all day, the doors of dark Hades stand open; but to retrace the path; to come out again to the sweet air of Heaven—there is the task, there is the burden.” –Virgil, The Aeneid
It only felt right to quote my favorite Roman poet this week because, well, we appear to be in similar epic times. We have ridden a rollercoaster to Hades and back again this week thanks to the president’s evolving tariff policy, which sent the bond and stock markets plummeting, soaring and then falling again as investors grappled with the uncertainty.
About 12 hours after country-specific tariffs took effect on dozens of U.S. trading partners—and after days of insisting that he would hold the line—President Trump said on Wednesday afternoon that he would pause most of them for 90 days after asserting on Truth Social that more than 75 countries had been in touch to negotiate.
Trump had maintained all week—and even on Wednesday morning—that the country-specific tariffs would not be halted, despite urgent pleas for him to do so or risk recession. This pause on higher tariffs gives the White House three months to engage in negotiations with individual countries. Top administration officials are now saying this was Trump’s strategy all along, as opposed to a reaction to days of sharp declines in the stock market.
“Many of you in the media clearly missed the art of the deal,” White House press secretary Karoline Leavitt said, referring to the title of Trump’s co-written 1987 book. “You clearly failed to see what President Trump is doing here.” Ah, yes, the old Trojan Horse technique—Virgil would be proud!
Following news of the pause, Wall Street and global markets breathed a sigh of relief and soared from midday until the close on Wednesday, with the S&P 500 Index notching its largest one-day gain since 2008. But many of those gains were given back by week’s end as investors reconsidered how they felt about a three-month stay and evaluated the risk of Trump’s stance on China.
Trump now has tariffs on China at a whopping 145% rate because of what he called “the lack of respect that China has shown to the world’s markets.” China responded with 125% tariff rates on U.S. goods, and a warning that the U.S. is on track to become an economic “joke.” For his part, Trump told reporters that he is open to meeting with Chinese President Xi Jinping, calling him a friend and “one of the smartest people in the world.”
“We’ll end up making a very good deal,” Trump said. “We will get a phone call at some point and then it’s off to the races.”
Bond markets experienced just as much angst as stocks this week, especially longer-maturity bonds, where yields rose and fell by over 50 basis points (0.50%) in a single day. The cause of the bond market mayhem is under debate, but theories range from worry over the inflationary impact of tariffs, the Federal Reserve’s unwillingness to cut rates to support the economy, fear of waning overseas demand and outright divestment, as well as the plain old selling of bonds for cash and tax payments as market volatility soared and the prices of other asset classes plunged.
However, many are speculating that these sharp changes in yields reflect something more sinister. Following these haphazard policy moves, perhaps investors were selling on the idea that the U.S., long a bedrock of the global economy and financial system, is no longer as stable as assumed. Could it be that our government debt’s safe-haven status is now only a chimera?
Economic releases this week were positive on the inflation front, with the consumer price index (CPI) rising only 2.4% year-over-year in March, reflecting the smallest annual gain in six months. The same was true for the producer price index, which showed an annual increase of 2.7%, down from 3.2% in February, the slowest annual increase since October 2023.
However, these numbers are pre-tariffs, so the momentum toward price stability they reflect may be gone now. Consumers are already fearful of inflation, according to the latest reading of the University of Michigan consumer sentiment survey. This barometer plunged in April to its second-lowest reading since 1952 and was even lower than anything seen during the Great Recession between 2007 and 2009.
Tariffs are even hitting our children hard, as kids across America woke up to the news that the launch date and the price of the already expensive Nintendo Switch 2, a real-life commodity for our beloved youth, were uncertain. That’s right, even the Super Mario party is now in jeopardy.
Earnings season gained traction today, with JPMorgan Chase keeping up its long string of beating analysts’ expectations. Morgan Stanley and Wells Fargo also delivered positive results. Those strong first quarter reports, however, came with a dose of caution. Bank leaders warned of economic turbulence and took new action to protect their businesses from possible upheaval by building net cash reserves.
BlackRock, the world’s largest asset management firm, reported first-quarter net income of $1.5 billion, down 4% from the year prior, even as assets hit their peaks. BlackRock Chairman and CEO Larry Fink said in a statement: “We’ve seen periods like this before when there were large, structural shifts in policy and markets—like the financial crisis, Covid and surging inflation in 2022. We always stayed connected with clients, and some of BlackRock’s biggest leaps in growth followed.” We can only hope that sentiment holds true for all of us.
This week’s market action highlights the self-inflicted nature of the economic uncertainty we’re seeing—volatility that could be reversed as quickly as it was created, often via a single social media post. In the short run, markets can be influenced by all kinds of dynamics that subordinate fundamentals to fear.
That said, the remaining tariffs are meaningful, and the threat of renewed escalation will likely persist through at least the 90-day window. And despite the sell-off, it’s hard to argue that markets are especially cheap over the short-term. The S&P 500 is still trading at roughly 20 times forward earnings estimates. If current policy remains intact, those estimates may prove overly optimistic. As such, while we look to position portfolios in this period, we must extend our view beyond just the next quarter or two and out over the coming years. And though we do not believe this is a time to go bottom fishing, we are seeing opportunities to reposition portfolios that may have grown overly concentrated through the rally of the last two years to target what we believe is a more ideal balance of growth and value, domestic and foreign, and stock and bond exposure.
As Virgil also so eloquently said “Superanda est omnis fortuna ferendo,” which means “Come what may, all bad fortune is to be conquered by endurance.” Endurance is critical in times like these and is a time-tested investment principle. Said another way by investment genius Warren Buffett, “We don’t have to be smarter than the rest. We have to be more disciplined than the rest.”
If you would like to speak personally with a member of your advisory team, please call 833.RWA.PLAN (833.792.7526).