Welcome to your April monthly market outlook from atomos
On Wednesday President Trump sent shockwaves through global financial markets by turning his trade tariff threats into reality. On what he called ‘Liberation Day’, the President announced a swathe of ‘reciprocal’ tariffs on imports to the US from all countries. The impact of this move should not be understated – it will reshape the global costs of doing business, with a significant impact on economic growth, prices, and capital markets.
Trump’s reciprocal tariff plan has two parts. Firstly, a baseline tariff of 10% will apply to the imports from all countries, starting on 5 April. Canada and Mexico have been excluded and look to have escaped a worst-case scenario. For these two, the current policy of 10-25% tariffs on a small amount of goods that are not included in their free trade agreement with the US remains.
Secondly, many of the US’s major trading partners face additional country-specific tariffs, with the tariff level linked to the US trade deficit with that country. For instance, China (34%), the Euro area (20%), Japan (24%), Korea (25%), and Taiwan (36%) face high additional tariffs, which will start on 9 April. The tariff levied against the UK is 10%. Some economists say they are baffled by the formula used to calculate the tariffs, which is based on the size of trade deficits.
At a headline level, these two parts increase the overall effective tariff rate that the US is levying against the rest of the world by around 18-19%. Scott Bessent, the US Treasury Secretary, reiterated that the announced tariffs are ceiling rates if countries don’t retaliate. Since reciprocal tariffs vary by country, there is likely to be room for negotiations.
How did markets react?
(Information updated as of 10.12am on 4th April)
On Thursday, global equity markets fell across the globe, with larger falls seen in the US market (c.-5.5%) compared to Europe (ca. -2.6%) and the UK (c.-1.5%), while the US 10-year Treasury bond yield (interest rate on government bonds) fell by more than 0.1% (meaning a sharp rise in bond prices), as investors fled riskier asset and sought safe havens.
How have we adjusted our thinking?
We have lowered our forecast for US GDP growth for this year and increased our forecast for inflation. We think the likelihood of recession in the US has now increased from a 25% chance to 35%, reflecting both the drag on growth and ongoing uncertainty. We will be updating our macro forecasts for other major economies in the coming days. While the most significant uncertainty about Trump’s intended trade policy has now been removed, we expect further developing headlines as countries determine if and how they choose to respond. While some retaliatory measures may be expected, we also expect to see attempts to ‘cut a deal’, with endeavours to offer concessions to the Trump administration in ways that may mitigate the economic impact of the announced tariffs.
While our assessment of US economic growth in the next few quarters has weakened, we note that it is still positive, and a recession, while more likely than prior to the tariff news, is still not our ‘base case’ economic forecast. As US stock prices have fallen on the news and declined year to date, we still think having that extra conviction in stocks will add value to portfolios over the next 12 months.
Investors shift focus from US to Europe
Global equity markets have become more volatile since President Trump returned to office in January 2025. Initial optimism quickly gave way to fear as he made his protectionist stance clear. US equities (as measured by the MSCI USA index) peaked in February but have since lost their gains on Trump optimism, while European equities have surged, supported by relative political stability.
Geopolitical and macroeconomic concerns heavily influenced market moves over the quarter. The revival of trade tensions - spanning China, Mexico, Canada, and Europe - and growing fiscal brinkmanship in Washington, heightened global uncertainty. Unlike in Trump’s first term, ‘bad-for-market’ policies are being prioritised first, while ‘equity-friendly’ measures, such as tax reform and deregulation, are expected to be announced later in the year. Investors are being more cautious around US equity valuations, anticipating that the current administration is less focused on supporting US equity markets compared to Trump 1.0.
In contrast, European equities have benefited from improved optimism, encouraged by the prospects of increased defence spending, greater government spending in Germany, and hopes for an end to the Russia-Ukraine conflict.
This rotation away from US and towards European stocks can be seen in the performance of the MSCI World – a global stock index which has shown resilience in the first three months of 2025, falling just 2% in sterling terms.
Over the first quarter of the year, earnings expectations for US companies were revised down, while analysts revised their outlook for European company earnings upwards, albeit from a lower base. While we expect US earnings growth in 2025 to be in the mid-single digits, the narrowing of the difference between likely US and European earnings growth has dampened capital flows into US equities and supported flows into Europe.
Meanwhile, in March, equities in most markets faced selling pressure from hedge funds for technical reasons. As equity market volatility picked up, hedge funds moved to reduce leverage (borrowing) in portfolios and become more cautious in their positioning.
Performance has been markedly different across sectors. Former market leader, the technology sector, has suffered a harsh correction on tariff risks and unpredictable policy. The Magnificent Seven – the artificial intelligence-exposed large technology stocks - have also faced extra pressure following the popularity of DeepSeek, China’s answer to ChatGPT. The high concentration of these stocks in the US equity market has weighed on the broader index.
Elsewhere, industrial and consumer sectors exposed to global supply chains have lagged, while defensives - particularly utilities - have offered shelter. Energy has held up, supported by the Trump administration’s pro-fossil fuel stance.
Spring Statement offers few surprises
Rachel Reeves delivered the Spring Statement on 26 March, in which she confirmed the Office for Budget Responsibility had slashed the UK’s economic growth forecast for this year by half to 1%. This moved the UK’s growth outlook into line with our expectations at the start of the year. From a portfolio perspective, particularly in the context of running a global investment portfolio, the Spring Statement was something of a non-event, and we’ve not seen any significant short-term market movements as a result either.
It was reassuring that the Chancellor was willing to make the minor changes to spending required to restore fiscal headroom to the level prevailing after the last Budget. This means she has not had to consider changing the ‘fiscal rules’ – a euphemism for borrowing more – or raising taxes again with consequent risks to growth.
Sector in focus: Infrastructure
The German government unveiled a huge spending package which is likely to lift several key domestic sectors in Germany, especially infrastructure. The government plans to invest in modernising transport links including rail and highways, as well as electric mobility infrastructure, which should boost the construction industry. Military equipment and technology companies could benefit from increased defence budgets. The focus on energy efficiency and decarbonisation within the infrastructure fund could also favour the renewables and energy infrastructure sectors.
If you would like to discuss any of the topics covered in this month’s outlook, our door is always open. Contact us
Content correct as of publication on 4th April 2025
All investment views are presented for information only and are not a personal recommendation to buy or sell. Past performance is not a reliable indicator of future returns, investing involves risk and the value of investments, and the income from them, may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested. Any views expressed are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness by atomos. Any expressions of opinion are subject to change without notice.