April was a choppy month for investors. The negative market reaction to President Trump’s tariff policies sent global equity markets down 11%. The sharp market selloff appears to have made the president blink, as he quickly announced a 90-day pause on many of his newly declared tariffs. Immediately, the markets responded to this shift, skyrocketing and nearly erasing their prior losses. Additional tariff news dribbled throughout the rest of the month, mainly regarding modifications and exemptions on items such as car parts, consumer electronics, and some industrial metals. Financial markets responded by clawing back additional ground. Many stocks ended the month of April down, but international stocks managed to rise 3.6%. Our strategies, which include international exposure, have benefited from this trend. The U.S. bond market, which had been mostly insulated from the tariff turmoil, rose 0.4% for the month.
Does the rebound to end the month mean the threat of further tariff turbulence has passed? Not in the slightest. While we would not be surprised to see further extensions, exemptions, and modifications coming from the White House as polls show this version of tariffs is unpopular, the threat of tariffs and the confusion that comes with those threats will remain. Companies ranging from Delta Air Lines, General Motors, and Sketchers have already pulled their profit guidance for the year due to Trump’s trade policies and their resulting macroeconomic uncertainty. The size of the trade deficit swelled in March by 10%, as companies and consumers rushed to import goods prior to the tariffs taking effect.
It is also fair to question whether Elon Musk’s efforts through D.O.G.E. are having the promised budgetary impact. CBS News recently reported that the federal government has spent about $220 billion more in President Trump’s first 100 days than it did during the same period last year, more than canceling out any D.O.G.E. budgetary savings. On those budgetary savings, relative to the size of the U.S. GDP, it does not seem as though they will amount to much. D.O.G.E. recently claimed they had saved U.S. taxpayers $160 billion so far. Even if we take their claim at face value and make the assumption that they can continue to cut spending at the same rate for the rest of the year, the cuts still would not have the economic impact one might think. The size of the U.S. economy is $29.7 trillion and the reductions would only amount to 1.6% of GDP.
While April ended much calmer than it began, we recognize the potential for more volatility in financial markets given the unpredictability of trade policy. There is even the potential for the courts to invalidate the legal foundation for a president to unilaterally impose peacetime tariffs, as recent lawsuits have been filed arguing that the constitutional powers of taxation, and therefore tariffs, lie solely in the hands of Congress. Regardless of such an outcome, the best advice remains to use diversification as a tool to blunt volatility.
