US tariffs: Keeping a long-term perspective

Yesterday’s far-reaching US tariff announcements have caused stock market falls today. But we still see significant signs of solid economic growth that we expect to support markets over the long term. 

While periods of market volatility can be uncomfortable, we believe it’s important to stay focused on an extended time horizon. On that front, we still see positive signals within the economy and markets. For now, our base case – based on hard data – remains one of ongoing growth. 

Strong wage growth and employment numbers in the US

This should help mitigate any negative impact of President Trump’s tariffs on prices and see consumers continue to spend their money, helping the economy. 

Credit spreads remain well contained

This is the difference in yield between a US government bond and a corporate bond of the same maturity. Many analysts believe it to be one of the most accurate measures of economic health. Markets tend to demand higher yields to offset the risk if borrowers begin to default. A more contained difference between corporate bonds and government bonds, as we’re seeing today, suggests widespread defaults remain unlikely – a positive sign for the economy.

We could see US tax cuts and de-regulation

President Trump’s tariff policies were always going to be the most difficult for markets. But Congress is also working on a fiscal package which includes personal and corporate tax cuts, We could see US tax cuts and de-regulationwhile de-regulation is on the government’s agenda as well. Developments in those areas could potentially support market performance later this year.

We may now be past peak uncertainty

Following weeks of market concern regarding yesterday’s announcements, we now have a clearer picture. Much will depend on how the affected countries respond, but investors have now shifted away from speculation and towards fact. And greater clarity could ultimately aid markets.

Fahad Kamal, Chief Investment Officer at Coutts, says: “The global economy remains in a slowdown regime, but it continues to grow. And while recent developments have increased the risk of a US recession, that’s still not something we expect. Over time, slowdown periods have typically proved relatively positive for equity markets in the past.

“We will see further volatility in markets for the time being. But overall, both US household and company balance sheets are robust. They will be impacted by these tariffs and current uncertainty, but we think they are well-equipped to absorb the changes.”

Past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can fall as well as rise and you may not get back what you put in. You should continue to hold cash for your short-term needs.

Diversity and opportunity – how we manage your money

In light of the current, still positive economic outlook, we remain pro-equity investing with an overweight position in global stocks. But for us, diversification is key for these more challenging times in markets. It is a powerful investment tool for helping to cushion our clients’ investments from the worst of market falls.

Our multi-asset strategies are diversified in a number of ways:

Seeking opportunity

Such times in markets are not without opportunity, and our active fund managers are watching closely for chances to buy assets at a good price.

Our analysis suggests that, historically, buying when uncertainty is high could potentially result in higher returns over the following 12 months. Since 1990, when the Volatility Index (VIX) has been above 25 – as it is today – the total return of US equities in the following 12 months has averaged 16%, compared to 11% when it was below 25.

“Corrections like the one we’re seeing today are a ‘normal’ part of investing,” says Fahad. “That doesn’t make them any more palatable, but they do tend to occur every 12 to 18 months.

“The important point is that markets usually tend to find a way through them. As long as you have an extended time horizon as an investor, you could achieve your investment goals for the future.”

He adds: “We will keep a close eye on developments and stand ready to adjust our holdings accordingly should it become necessary. But we are long-term investors and we do not engage in knee-jerk reactions. As of right now, we see no reason to change our current positioning.”

Speak to us

If you are a Coutts client and would like to discuss current market developments or your own investments with us in more detail, please contact your private banker.