As markets tumble, wealth managers and market strategists are scrambling to communicate with clients and review portfolio allocations in the wake of President Donald Trump’s sweeping tariff plans.
Trump announced on Wednesday a 10% base tariff on all foreign goods exported to the US. Additionally, he set out a plan for reciprocal tariffs on all countries that currently impose some variety of tariff or non-monetary barrier on importing US products.
These reciprocal tariffs will be 50% of what these countries impose on the US. For example, the US government tallied China’s total of monetary and non-monetary barriers to a rate of 67%, therefore all Chinese imports will be taxed at 34%. Japan and India will face 26% and 24% taxes on their goods, respectively. The European Union’s bill for US goods will be 20% under the president’s new plan.
Markets around the world fell on the announcement, with the S&P 500 losing more than 4% in morning trading, Japan’s Nikkei 225 falling 2.77% and Germany’s DAX dropping 2.29%.
Gene Goldman, chief investment officer of broker-dealer Cetera Financial, described the wide-ranging tariffs as a ‘break the glass moment’ to which his team was rapidly responding.
‘Like past significant dislocations — Russia’s invasion of Ukraine, Covid — we have begun a three-pronged approach,’ he told Citywire.
‘First, we are escalating our marketing perspective efforts immediately. This includes commentary and an all-advisor conference call on Monday. Second, our team is reviewing asset allocation opportunities with the possibility of making significant portfolio changes. Third, our manager research team is reaching out to their respective coverage … to understand how their managers are reacting during stressful times and any potential pivoting in their portfolios to take advantage of this volatility.’
He added that it was during major market and macro events that ‘we gather the most insight of how managers react under stress.’
Crit Thomas, global market strategist of Touchstone Investments, said he and his team had previously ‘misjudged Trump and his administration in their willingness to accept near-term economic pain to achieve their goals of government downsizing, reversing the flow of immigration and bringing manufacturing back onto our shores (through tariffs).’
He said that over the last two months, his team moved to re-disk portfolios and remove a pro-cyclical tilt to correct this, but conceded ‘yesterday’s tariff announcement suggests that we didn’t go far enough.’
‘The tariff announcement was much worse than expected,’ Thomas said. ‘The Trump administration is embarking on an economic experiment with limited positive historical precedent. The way the tariff calculations were framed makes it difficult for negotiations. The risk that there is retaliation and tariff escalation is high, and that would introduce recessionary risks, both here and abroad. We don’t believe this is a time to be a contrarian.’
Tom Graff, CIO at $3.8bn Baltimore-based RIA Facet, agreed that many on Wall Street misjudged what to expect from the Trump administration.
‘There was an assumption that Trump was very sensitive to market movements, like in his first term, he would react whenever the market would be down. He viewed that as kind of like his approval in a sense, and so far that has not been the case, he does not seem worried about it,’ he said. ‘I think part of what you’re seeing is not just a reaction [by Wall Street] to the tariffs. It’s like, “man, we priced in lower tax and lower regulation era, and that was nice, but this is worse than that.”’
Graff said it was a ‘fool’s game’ to try and build a long-term investment strategy based on current policies, but advised looking for parts of the market that could be considered resilient.
‘For us that means companies with less debt burden and higher profit margins and, to a certain extent, less earnings variability,’ he said. ‘If you look at companies like that, I think they’re not going to be up on a day like today, but they’re the ones that can then have a little bit more ability to flex as conditions change.’
In a note to advisors, Wells Fargo head of global investment strategy Paul Christopher said that the firm was focused on quality and favored the US over China and Europe.
‘Tariff uncertainty is likely to continue, and actual tariffs will have costs, although we doubt they will derail either the economy’s moderate pace or the investment returns we continue to expect,’ he wrote.
‘Our guidance focuses on quality. We are skeptical of the rallies in Europe and China, and favor US over international markets. In the US, we favor large-cap and mid-cap equities. In fixed income, we favor reducing exposure to intermediate and long-term maturities (in other words, from three years and longer in maturity) while uncertainty remains.’
