Trade and tariff wars
Relative sanity prevails. What an extraordinary set of headlines to wake up to. Market likes it; we are pleased, in that we did some dip buying, and upped the hedge ratio, trades that are certainly looking good by the light of today, with all the usual caveats about whatever uncertainty tomorrow may bring.
Essentially Trump blinked, the market pain/feedback/signal to him/the Administration (people like Scott Bessent) means he’s walked a lot of it back. But we do still have fairly enormous tariffs on China, which, now that they’ve gone up to 104%, from a number originally half that, on the second largest economy in the world, means that the weighted average tariff is still high, and that is still a clear net negative for global growth.
Equally, it’s possible China responds by focusing on (unleashing) domestic stimulus, which we think would go a long way towards improving the sustainability of their economy. It’s also possible the US and China will come to some more mutually beneficial agreements. There’s nothing prescient in that statement; it sort of just seems impossible that they (both countries) could just carry on without meaningful declines in economic activity from engaging in this war with each other. Trump (and China) both seem to be leaving the door open to further dialogue in their respective statements.
We’ll get some weak macro data a month from now, as there has likely been little to no hiring, or no new investment, from firms across the world over the last month, and with any luck markets will look through that as a “April’s problem” type thing, but, it’s worth keeping in mind that they don’t. Consensus EPS estimates are still pretty high, and we are sure to get “some” corporate downgrades over the coming US results season.
If it were a 10% hit to earnings, on an 21x multiple, then you get within a few percent of the current index value. The blended forward eps profile (a bit this year, a bit next year) is a more palatable 18-19x, but still elevated relative to history, and assumes no big hits to earnings.
As such, we continue to have plenty of “dry powder” across the diversified portfolios, and will likely look to utilise that if markets resume selling off.
