Liberation Day tariffs: Freedom or fallout? 

The concept of Trump's “Liberation Day” tariffs was nothing new; the President had been vocal about his intention to “make tariffs great again” since his campaign days. 

Indeed, the market did react pessimistically to this very idea of tariffs upon Trump’s re-election just a few months ago. However, optimism surrounding the incoming President’s other pro-business stances, with a combination of AI-driven rosiness, seemed to have overshadowed the potential impact of these tariffs. Consequently, many investors were caught off guard when he proceeded to unleash a comprehensive catalogue of tariff impositions against the rest of the world on 2 April, officially calling an end to the previously bullish market environment.

According to the Yale Budget Lab, as of April 9, the effective tariff imposed by the US on imports averaged at 25.2%, the highest level since 1909 and criticised for reversing over a century of progress on free trade and globalisation. These tariffs are expected to cost an additional US$4,400 per household this year, effectively dampening American consumer and investor sentiment. 

This raises the question: Will these tariffs bring economic freedom as envisioned by President Trump, or lead to a heavy US fallout?

Tariff tremors

The announcement of the Liberation Day tariffs sent immediate shockwaves through the financial markets, causing US equities to plunge deeply – particularly painful for investors who had been basking in the warmth of the Magnificent Seven and AI-driven glory.

The impact was felt beyond the US markets, with Japan’s Nikkei 225 slid into a bear market. The Japanese Yen’s strength is also threatening to erode the profits of exporters. Hong Kong’s Hang Seng Index experienced its biggest drop since 1997. European shares recorded their biggest daily loss in eight months on 4 April, while China witnessed its largest single-day drop in three years.

Even cryptocurrencies, an asset class that Trump has been promoting, wiped out almost all their gains since his election win in November.

Adding to the market volatility was China’s swift retaliation with tariffs on US goods (84% as of 9 April), which prompted Trump to impose even more tariffs on China (145% as of 11 April). China responded with a 125% tariff on US goods (as of 11 April), creating a tit-for-tat escalation before Trump backed out slightly to offer exemptions on items such as Chinese electronics as of 12 April.

While speculations about a “90-day pause” had been floating around with a false alarm causing a short-lived intra-day spike in markets, it was actually the bond markets that seemed to have prompted the actual “90-day pause” that came a few days later. 

This was caused by the rising 10 year treasury yield amid widening credit spreads and concerns over growth worrying the market that something may be wrong. The announcement was a much needed positive news for the market prompting the S&P 500 to shoot up by 9.1% (SGD terms) in a single day – the eighth best day in the index’s history since 1928.

What now?

At this point, only one thing is certain – uncertainty. 

Even with the specifics of tariff impositions out in the open, things are still evolving (as of April 14). The chaos continues with Trump appearing to retreat slightly from the tariff war via temporary exemptions on certain imports, such as auto parts, while other sectors like pharmaceuticals and semiconductors remain under fresh new threats. 

This all unfolds amid the risk of permanent damage to the US economy and sinking poll numbers for Trump. The added caution on inflation and the potential for Fed rate hikes (albeit with a relatively lower chance according to market participants for the time being) further adds to the chaos.

However, some believe there is still hope. Historically, the S&P 500 has gained an average of 20% over the year following periods of policy uncertainty, suggesting that investors may benefit from staying invested. Still, this historical perspective does not account for the unique intricacies of the current tariff situation.

Others argue that the administration could eventually change course due to the long-term political unsustainability of these policies. However, things may get worse before they can start to improve – after all, the combination of falling asset prices, lower consumer confidence, and sticky inflation may turn out to be serious concerns.

What’s in it for you?

Diversification remains the mantra of the day – even amid the turmoil, certain sectors and regional markets are faring better than others. This may also be a reminder to reassess your investment objectives and time horizon. 

If you are holding longer-duration assets that may take more time to recover than others, and this doesn't align with your liquidity needs, consider switching into asset classes that are more suited to your requirements.

Otherwise, remember that market volatility is a natural part of investing. Maintaining a long-term perspective can help you stay focused on your financial goals despite short-term fluctuations.

March and Q1 2025 market update

In Q1 2025, defensive equities outperformed while tech stocks plunged following the rise of China’s DeepSeek and subsequently tariff concerns. US treasuries and investment grade credit delivered strong returns amidst rising recession fears, supported by solid corporate fundamentals and a weaker US dollar. 

Gold and silver gained, as safe-haven assets, while digital assets faced mixed fortunes. This quarter underscores the importance of diversification in navigating market volatility.

Global equity market

Savvy investors might remember that just about three months ago, technology was the top-performing sector in Q4 and 2024. Investors were optimistic about the incoming Trump administration’s pro-business stance, America-first policy, and the ongoing Western AI leadership, expecting the tech sector and related growth stocks to continue delivering strong returns.

However, the trend reversed dramatically in Q1 2025. Defensive sectors such as energy, financials, utilities, consumer defensive, and materials emerged as the top performers, while technology and other growth sectors plunged. The emergence of China’s DeepSeek dampened enthusiasm for tech and AI plays as early as January, while consumer sentiment was further hit by tariff announcements and planned public sector job cuts by the new Department of Government Efficiency (DOGE).

This divergence was also evident across different regional markets. Home to the Magnificent Seven stocks, the US ceded its leadership to other markets such as China and Europe, each benefiting from different drivers but ultimately sharing a singular theme – recovery. 

China's innovative capability was re-evaluated, due in part to DeepSeek, and Beijing’s supportive stance for businesses and stimulus packages helped restore investor confidence in the region. Europe benefited from stable geopolitical conditions and improving investor sentiment, following clarity on US trade policies. 

Japan suffered due to weaker performance in exporters and technology-related stocks following tariff announcements, while emerging markets performed relatively well, driven by strong showings in markets such as China and Korea.

Global fixed income market 

Rising investor pessimism and perceived recession risks brought fixed income assets back into focus, particularly high-quality assets like US treasuries, which posted attractive returns in Q1 2025. Inflation-linked bonds also performed well, driven by concerns over inflation following tariff announcements and a sharp fall in US real yields.

Investment grade credit showed resilience despite the threats tariffs posed to the growth outlook, as strong corporate fundamentals helped limit spread widening by the end of Q1. Additionally, a weaker US dollar provided support for emerging market debt.

Commodities

In Q1 2025, precious metals shone brightly against the backdrop of investor anxiety over tariffs and their potential impact on economic growth. Safe-haven assets such as gold and silver posted significant price gains. 

Digital asset investors faced conflicting forces throughout Q1 2025, entering the year with a rosy picture painted by Trump’s ambition to position the US as the global crypto hub. However, the uncertainty surrounding tariff policies subsequently cast a shadow over all risk assets, including cryptocurrencies.

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For details on how key Endowus portfolios performed in the quarter, click here. Watch our webinar on Q1 2025 performance and market insights for the new year at this link.

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