On April 2, the current administration unveiled the most significant change to U.S. trade policy in recent history. Markets were caught off guard by the magnitude and scope of the newly announced tariffs, triggering a broad sell-off in global equity markets. Investor uncertainty deepened upon realizing that the tariffs were based on current trade deficits rather than on the tariffs imposed on U.S. exports. This unconventional approach, targeting trade deficits, obscured the underlying intent of the tariffs, complicates future negotiations, and clouds the potential long-term impact on the U.S. economy. The uncertainty drove a precipitous pullback in U.S. equity markets, with the S&P falling approximately 12% over the next six days.
After a week of mounting political pressure, private sector criticism, and roiled markets, the administration announced a 90-day reprieve on higher tariffs for most countries. A 125% tariff will be implemented immediately on China, while all other tariffs would be reduced to 10% for 90 days to allow for trade negotiations. Markets responded to the surprise reversal with some of the strongest gains on record. The S&P's 9.52% gain marked the third-best day since World War II, and the NASDAQ's 12.16% surge was its second-best day ever.1
While the tariff reprieve is welcome news, we are not treating it as a return to business as usual. The decision to pause tariffs was just as unexpected as the broad reach of the tariffs in the original announcement. While it alleviates some immediate supply chain and trade concerns, it does little to clarify the administration’s long-term economic and trade policy. Sudden shifts in policy have consequences, and economic activity could slow until there is greater clarity on whether the administration is willing to reconsider its stance on tariff rates after the 90-day window.
Although tariffs were the immediate catalyst for the recent market drawdown, elevated equity valuations were the underlying cause. Prior to the tariff announcement, most major valuation models indicated that U.S. equities were expensive. The S&P 500’s forward P/E Ratio2 was 20.2x on March 31, compared to the 30-year average of 16.9x.3 As of April 9, the forward P/E ratio had dipped slightly to 19.6x, but it still indicates that markets remain expensive.
No one can predict with certainty what will happen tomorrow, over the next 90 days, or in the coming year. However, recent volatility and ongoing uncertainty have underscored the importance of portfolio diversification. As discussed in our March 17 Market Perspectives, “Market Volatility: Uncovering the Key Influences,” our intentional exposure to value stocks, international equities, and hedged equity strategies has helped our portfolios remain more resilient than broader indices. In addition, allocations to cash, short-term bonds, and high-quality long-duration fixed income have provided critical flexibility and downside protection. These strategies have been in place for some time and are continually reevaluated as conditions evolve.
We’ve taken additional steps during this volatility to further protect portfolios. High yield bonds have generated double digit returns during the past two years and provided stability as interest rates rose in 2022. We liquidated high yield exposure for all client portfolios. While these bonds performed well over the last few years, they are sensitive to economic conditions.
We don’t underrate the discomfort this kind of volatility causes; it’s a very real and valid emotional response. It’s normal to focus on the highest point your portfolio reached and to feel discouraged when the value falls below that level. We all tend to compare where we are now to where things looked at their best, even if that high point was temporary. But it’s important to remember markets move in cycles. Ups and downs are part of the journey, and short-term declines don’t change your long-term progress. Staying focused on your plan is the most powerful step you can take during times like these. And that’s just what we’ll do. We’re here to help you navigate the uncertainty with perspective and stay focused on the long-term.
¹ Imbert, Fred, and Yun Li. "Stock Market Posts Third Biggest Gain in Post-WWII History on Trump's Tariff About-Face." CNBC, 9 Apr. 2025
2 The forward price-to-earnings (P/E) ratio is a valuation metric that compares a company’s or index’s current share price to its expected earnings over the next 12 months
3 J.P. Morgan Asset Management. Guide to the Markets – U.S. Q1 2025