Monthly update: Global markets rebound after Trump’s tariff u-turn

At the beginning of the month, President Trump unveiled a cascade of tariffs against nearly all America’s key trading partners causing global markets to fall by more than 10%. However, stocks bounced back in the space of a week after Trump implemented a 90-day pause on tariffs against all nations except China. This resulted in the S&P 500 posting an 11.8% gain, in sterling terms, from its trough to the month’s end, with European and Asian markets also rallying.

Trump’s controversial bid to reshape global trade also sparked disruption in the bond market, with yields soaring (prices fell). Meanwhile, the US dollar fell to a three-year low against a basket of currencies after Trump publicly disapproved of the US Federal Reserve’s management of interest rates.

At the end of the month, economic data reported that US GDP declined for the first quarter of 2025. A contributing factor for the contraction was US imports far exceeding exports as companies started front running orders before the tariffs were actioned. Excluding this metric, the rest of the data suggested that the US economy continued growing.

Although stock markets recovered to end the month flat and bond markets stabilised, the dollar was still down despite making gains. The good news is that we are starting to get more clarity regarding the outlook. While there is still uncertainty, the range of possible outcomes is narrowing as trade negotiations begin to develop.

Fahad Kamal, Chief Investment Officer at Coutts, said: “If you just looked at the figures for where markets started and finished for the month, you would never guess how much volatility there was along the way.

“While there were times of concern for investors, major indices are now pretty much flat. You could be forgiven for thinking nothing much had happened.”

Amid all the tariff drama, earnings season has been somewhat mixed, with the US technology giants posting solid reports so far. A number of key announcements are yet to come, but as more companies release their results, we will be able to assess the impact of Trump’s trade policies more accurately.

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.

Given that our economic outlook suggests stability for the remainder of this year, we’ve maintained our exposure to global equities, which meant we were able to capture the market recovery. But diversification remains a key aspect of our investment approach during more challenging market times, helping to cushion portfolios from falls.

One strategy that has worked well for us is our decision to go overweight sterling – a move that has both enhanced diversification and contributed positively to portfolio performance given the declining dollar.

Active management also plays a key role in helping to protect investments during times of volatility. Our US active fund has outperformed this year, highlighting the value of active stock selection in shifting conditions. For example, our selected fund managers are underweight large US technology stocks which have underperformed year to date.

Other strategies we use to diversify portfolios include an allocation to US Treasuries and holding other high-quality bonds to help mitigate stock market falls. This approach has proved effective, with US government bonds up at the end of the first quarter of this year.

Additionally, our liquid alternatives fund adds another layer of diversification, even when stocks and bonds move together. It focuses on areas with low sensitivity to traditional stock and bond markets, and aims to generate stable returns regardless of whether those markets rise or fall.

At the time of writing, Q1 company earnings season was over two-thirds of the way through – a good look at how companies were faring before the uncertainty of Trump’s ‘Liberation Day’.

Over 370 companies from the S&P 500 had reported their financial performance for the first three months of the year, and three-quarters of them had beaten expectations – in line with the average figure since 2013. Also, estimates for how much earnings grew from the first quarter last year to the same time this year had risen from 6.6% to 12.5%.

So far, so good. But one sector that stood out as an underperformer was consumer discretionary – companies providing non-essential goods and services including high-end clothing, entertainment and travel. In this sector, 33% of companies had missed expectations and analysts appeared to be cutting their earnings estimates for the sector by more than in other areas.

This shows how, even before tariffs, US consumers were starting to rein in their spending as part of the broader trend towards slower economic growth. But even though the US economy is slowing, it is still growing, and that should continue to underpin a sound environment for investors over the long term.