Client Update - 25th April 2025

It has been a better week for investment markets as Donald Trump has started to signal a further retreat on his tariffs as more CEOs warn about their fallout during US earnings season.

The latest news is that Trump plans to spare some car parts from tariffs he imposed on Chinese imports to counter fentanyl chemicals production, as well as levies on steel and aluminium. The reprieve, which comes after intense lobbying from car making executives, is the latest sign Trump is open to offering carve-outs to favoured industries after his tariff plans sparked a deep market sell-off and recession fears.

He is even softening on China. Since raising tariffs on China to 145%, Trump has repeatedly called on Beijing to negotiate while President Xi Jinping has, at least publicly, declined the invitations. The US president recently doubled down, pledging that China was “going to do fine” in any negotiation and that there’s no reason to “play hardball.”

Bonds also started to gradually recover as Trump retreated from his threats to fire Fed Chair Jerome Powell (which may not be legal anyway). This week Rachel Reeves suggested after her trip to the US that Britain is prepared to cut long-standing tariffs on US cars and agricultural products such as beef and chicken to secure a trade deal.

Citadel founder Ken Griffin said Trump’s trade war has derailed business leaders’ plans to spend the next four years focusing on growth. While much of Wall Street supported Trump in November, many have come to regret their decision amid a weakening US economy and the possible end of US exceptionalism. For his part, Griffin—a big fan of Trump’s policies as a general proposition—said chief executives had been looking forward to a business friendly, regulation-light climate. “Unfortunately, the trade war, which has devolved into a nonsensical place, means we’re spending time thinking about supply chains,” he said. Griffin warned that the US is putting its brand “at risk” and said that Trump’s tariffs could be counterproductive.

Despite this better news, costs are going up for US consumers, as revenue from customs duties spiked more than 60% in April as the first levies took effect, bringing in at least $15 billion, according to Treasury data released on Wednesday. About two-thirds of importers pay tariffs monthly, on the 15th working day of the following month. But the numbers largely do not account for the 10% universal tariffs that Trump announced on April 2nd meaning collections in May could increase further. Some or much of the cost of those tariffs is likely to be paid by everyday Americans as the increase is passed on to them.

What has driven Trump’s blatant disregard for the rule of law? His actions can be explained rationally just by looking at the events of the past eight years. During that time, Trump was impeached twice, indicted four times and convicted once. But at no time did the 78-year-old real estate developer-turned president pay a price for his wrongdoing. Like any child who faces no consequences for his actions, it seems that Trump has concluded the rules don’t apply to him.

We remain positive in the outlook for markets as Trump gradually softens his tariffs and moves towards focusing on tax cuts and deregulation in the US later in the year. History shows that periods of extreme market volatility often pave the way for strong recoveries. Take the VIX, a real-time market index that measures the market's expectations for volatility over the next 30 days while assessing historical movements. It's often referred to as the "fear gauge" or "fear index" because it tends to spike during periods of market turmoil. Over the past 30 years, the VIX closed above 50 on nine occasions (and breached this level in early April 2025). In each case, the S&P 500 rose between 18% to 66% in the following 12 months. Moreover, when the VIX peaked above 50 and subsequently dropped below 30, the S&P 500 has posted a median one-year return of 17.9%. This same pattern in volatility is precisely what we've observed in recent weeks and for that reason alone we hope for a continued recovery, albeit occasionally held back by Trumps tweets and mixed messaging. Do have a good weekend.