Markets bounce back from Trump tariffs

There have been many headlines about President Donald Trump’s tariff policy over the last couple of months following so called ‘Liberation Day’.

After the first few days of the announcement, it has been hard keeping pace with what tariff is applied to what country, who’s striking trade deals and who is still out in the cold.

In many cases, tariffs are currently paused and only this week the US Court of International Trade ruled that the President didn’t have the power to impose sweeping import tariffs. Inevitably, within minutes of the ruling, the President said he would be lodging an appeal.

Against this backdrop, the markets have generally rebounded strongly after falling by around 10% in the immediate aftermath of the original cascade of tariffs. 

The one market that hasn’t quite surged back to previous levels is the United States which is so heavily dependent on the so called ‘Magnificent 7′ tech stocks and which had previously enjoyed stellar performances.

In terms of client portfolios, despite all the drama playing out in the White House, they are on average up between 4-6% on the year. Remarkably all asset classes are also pretty much up in the last 12 months.

All this again points to the importance of maintaining a long-term, balanced and diversified financial plan, one which is best placed to ride the kind of financial events that we see from time to time whether that is Trump’s tariff policy out of the US or something closer to home such as former Prime Minister Liz Truss’s emergency budget controversy.

In both these situations and others like them, the bond markets effectively say that if a particular course of action is pursued then the interest rate payable on the debt will rise. 

It was generally perceived that it was this message from the bond markets rather than the falls in the values of stocks that caused the President to change course and pause the roll-out of most of the planned tariffs.

The bond markets are an equally powerful force in our economy where Chancellor Rachel Reeves continues to walk a tightrope in meeting her own self-imposed fiscal rules. With UK economic growth still sluggish, investors are warning the Chancellor that she will have to cut public spending further or raise taxes again to meet her rule to balance day-to-day spending with revenues by 2029-30.

As the Government approaches its first anniversary in power, it continues to have very little room for manoeuvre given its fiscal rules and the wider state of the economy emphasising the pressure to deliver the sweeping cuts to the UK’s welfare bill that Prime Minister Starmer and his Chancellor have pinned their hopes on generating savings worth £5billion a year by 2030.

As ever, please do get in touch if you would like to talk through anything with a member of our team.