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Global financial markets have rebounded from deep losses earlier this spring, but the rally remains tenuous until there is more clarity about the potential economic fallout of the U.S. administration’s chaotic trade policy.
So what are we to make of the constant ebb and flow of financial markets this spring?
U.S. President Donald Trump’s assertion that his first 100 days in office are the “most successful” of any administration in the history of the United States is a bit hard to swallow when you consider the highly volatile performance of U.S. equity markets since his inauguration. Indeed, much of the turmoil that investors have experienced so far in 2025 can be directly attributed to the Trump administration’s chaotic new trade policy.
Still, we believe it could be a lot worse if Trump’s plan to tariff the world didn’t backfire on him as it seems to have over the past few weeks. The S&P 500 Index is now more or less flat after suffering deep losses earlier this spring. Moreover, the reason for its rebound can be directly attributed to the President Trump’s capitulating postponement of “reciprocal” tariffs for all countries that were targeted on his so-called Liberation Day in early April.
There’s no question the tariff reprieve is welcome relief for investors, and perhaps, in and of itself, that could be enough to potentially push equity markets higher from here. But it’s also dangerous, in my opinion, to start believing that all is back to normal.
Remember, reciprocal tariffs are only on pause until July 9 (except in the case of China, which reached its own 90-day postponement deal with the U.S. earlier this month). And while it’s certainly a possibility that this pause could end up being indefinite, that’s hardly a guarantee, given how erratic Trump’s presidency has been to date.
Besides, even if the U.S. administration ends up acquiescing on a more permanent trade agreement with China and other global trading partners, that process may take months, not days, to complete, and may not immediately address the fact that tariffs remain higher than they were before Trump’s second term began – even despite the announced postponements that have equity markets seemingly back on track.
For instance, as part of its tentative rapprochement with China, the Trump administration has agreed only to reduce tariffs on Chinese goods to a still hefty 30% from 145%, and China will continue to tariff U.S. goods at 10%, down from 125% before the deal was made.
There also remains a 10% baseline tariff on imports from other countries into the U.S., as well as targeted levies such as the 25% U.S. tariff on global steel and aluminum imports (with plans just recently announced to raise that to 50%).
More importantly, it’s still largely unclear how much damage these tariffs have done to the global economy, partly because their effect is expected to come with a lag and won’t show up in key economic indicators for a few months yet – which explains why the latest U.S. inflation figures continue to show prices falling on an annual basis.
What we do know, however, is that business and consumer confidence has been severely shaken by Trump’s tariffs, which, historically speaking, is usually not a very good sign of what’s ahead for the economy. We also know that many companies are so uncertain about the economic backdrop these days that they’ve suspended guidance about their future profitability for at least this quarter, if not longer.
Meanwhile, many companies – including major retailers that have significant imports from China – are warning that their pre-tariff inventories are depleting and that consumers should expect shortages on certain items and/or higher prices for goods now being shipped.
We believe, if anything, then, the rebound in global stock markets over the past few weeks seems tenuous – at least until there is more clarity on the potential economic fallout associated with tariffs that continue to remain in place. Moreover, there is still considerable uncertainty regarding potential levies on specific sectors, such as semiconductors and pharmaceuticals, that are still on the table. And what if the U.S. administration starts to feel emboldened by the recent rally in stocks and threatens to impose even more tariffs as we get closer to July 9 and the end of the 90-day reprieve? Surely, that kind of rhetoric, if ratcheted up, would be met with some level of increased market volatility, just as a weakening of markets may lead to a more conciliatory tone from the U.S. administration.
Yet, if Trump truly has capitulated – and that leads to favourable new trade agreements between the U.S. and its key trading partners – then we believe the possibility of a more sustained rally in the second half of 2025 may continue to grow more likely. Mind you, that prognosis also depends on how much economic damage has already been done, but even a severe slowdown sometime later this year could come with a silver lining for equity investors if it means a more accommodative U.S. Federal Reserve is the result.
We believe many investors are rethinking the idea of U.S. exceptionalism because of the tariffs. It’s no secret that U.S. stocks have vastly outperformed their global counterparts over the past decade or so, which has led many investors to believe a significant allocation to them (and other U.S. assets like Treasuries and the U.S. dollar) is paramount to building high-performing portfolios.
Yet, that all-in mentality may be starting to change given a growing perception that the current U.S. administration no longer provides the stability and support needed to maintain such high levels of U.S. exposure. In turn, this may explain why other global markets – including, most notably, European stock indexes – are outperforming U.S. counterparts by a wide margin so far this year.
Ultimately, it remains to be seen whether this shift in sentiment will continue longer term, but, in our opinion, it does suggest that some investors may want to reconsider the potential benefits of a more diversified portfolio now that U.S. exceptionalism is being questioned.
Kevin McCreadie is Chief Executive Officer and Chief Investment Officer at AGF Management Ltd.
Notes and Disclaimer
© 2025 by AGF Ltd. This article first appeared in AGF Perspectives. Reprinted with permission.
Commentary and data sourced Bloomberg, Reuters and company reports unless otherwise noted. The commentaries contained herein are provided as a general source of information based on information available as of May 21, 2025, and should not be considered as investment advice or an offer or solicitations to buy and/or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Market conditions may change investment decisions arising from the use or reliance on the information contained herein. Investors are expected to obtain professional investment advice.
The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
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