Tariffs Special_Weekly Market Note_04.04.2025
In summary, the global markets have experienced significant turbulence due to the escalating trade tensions, resulting in a flight to quality in bonds, a decline in equities, and increased volatility in hedge fund performance. The path forward for investors will require a balanced and adaptive approach to navigate the rapidly changing landscape.
Tariffs: Trump’s aggressive tariff announcement on April 2nd exceeded most forecasters’ expectations and appears to be an attempt to leverage market stress to negotiate tariffs with each country on a case-by-case basis. The tariffs are hurting US retailers who shifted supply chains away from China, and the 75% of global trade outside the US is now “irate” and considering or already implementing retaliatory tariffs. Trump’s policy ignores the economic concept of comparative advantage and is likely to cause short term pain, potentially leading to a reorganization of the US and global economy.
Market Impact: In the interim, sentiment has declined, and recession expectations have risen markedly. Equities have experienced significant volatility, with hedge funds actively reducing risk, particularly in the financials sector. Credit conditions are deteriorating rapidly, which could have knock-on effects across the global financial system. The uncertainty around trade policy has drastically slowed US deal flow and IPO activity.
Path Forward: Given the rapidly evolving and uncertain trade environment, a cautious and risk-averse approach is prudent. Diversification across asset classes, regions, and sectors may help mitigate the impact of these developments. Hedge funds are closely monitoring the evolving situation and preparing to adjust exposures accordingly.
