April 29, 2025
Tariff Troubles Continue
What Happened?
The April 2 U.S. tariffs announcement was a “known unknown.” While it was expected that President Trump would reveal his plan, the specifics were uncertain. Investors had already braced for some level of damage, with the S&P 500 Index dropping 8% from its February 19, 2025, high to the market close just before the announcement. It was widely anticipated that the news wouldn’t be as bad as feared and that the risk had already been “priced in.” Unfortunately, the details were worse than expected, with generally higher tariffs and more countries affected, including the Antarctic Islands, which are home to only penguins.
As is often the case in negotiations, the first offer is rarely the final one. While we expect a worst-case scenario to eventually be avoided—meaning that tariff rates could be renegotiated between the U.S. and the affected countries—the market's reaction assumed the worst. This was due in part to President Trump’s aggressive stance and the apparent lack of appetite for negotiation among trading partners. As a result, the market experienced a sell-off, with the S&P 500 Index falling another 12% from April 2 to April 8.
The tariff proposal lasted less than 24 hours before the President announced a 90-day reprieve. The S&P 500 rallied by 10% on the news, though it remained 11% lower than its high earlier this year.
Is a Larger Market Decline Normal?
Yes, market declines within a cycle are normal. Everyone, including the President, makes mistakes, and sometimes unforeseen events disrupt the status quo. Despite the challenges the world faces, it always recovers stronger. In our career, we have witnessed worse situations, such as the bursting of the tech bubble in 2000, the global financial crisis in 2008, Brexit in 2016, the COVID-19 pandemic in 2020, and the U.S. regional banking crisis in 2023. Each of these events eventually created opportunities for significant returns.
What’s Next?
Hopefully President Trump has learned that the world doesn't revolve around him. The U.S. operates within a democratic system, where the public continually evaluates the administration’s actions and votes accordingly. The stock market functions as a “voting machine,” and both Congress and the House of Representatives provide checks and balances.
We expect Trump to adopt a more balanced approach to trade negotiations over the next 90 days. Some tariffs will likely still be implemented, and U.S. consumers will bear the costs. However, the damage to relationships (and trust) with allies from this “drama” has been done. If Trump remains President, the anti-American sentiment among consumers may persist. This could negatively affect American brands and their sales, and ironically, widen the trade deficit.
We anticipate that investors will price in lower growth for U.S. companies and higher growth for others. This is a better scenario than a global recession driven by supply chain disruption and high tariffs.
About the Author
Alfred Lam, Senior Vice President, Co-Head of Multi-Asset, joined CI GAM in 2004. He brings over 23 years of industry experience to his portfolio design, asset allocation, portfolio construction, and risk management responsibilities, which include chairing the multi-asset investment management committee and sizing investment bets to drive added value and manage risk. Alfred holds the CFA designation and an MBA from York University Schulich School of Business. He is a recognized leader in multi-asset investing in Canada. During his tenure, his team has won multiple investment awards, including the Morningstar Best Fund of Funds, and saw assets growing four-fold.
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