by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with some new observations on the global financial markets as they respond to President Trump’s new US tariff regime. We next review several other international and US developments with the potential to affect the financial markets today, including reports of a new Ukrainian incursion into Russia and another firing of a high-level US military officer as part of what appears to be a broad purge of officials.

Global Financial Markets: By market close yesterday, US stock prices were relatively little changed. However, intraday trading was just about as volatile as yesterday’s action in Asia and Europe. Stocks were whipsawed by a false report that President Trump would pause his reciprocal tariffs for 90 days and by news that he threatened an added 50% tariff on Chinese goods if Beijing doesn’t lift its retaliatory tariff of 34% on US goods by Tuesday. Amid this volatility, we think investors and their advisors should keep in mind the following key points:

• While it is tempting to tag all this volatility on Trump’s tariffs, the problem is broader. As we’ve written for years, the global order is in the process of changing as the US reconsiders its role as the global hegemon. Even if Trump froze or rescinded his tariffs today, that process would likely continue, and the result would likely be further economic disruption and market chaos.
• The administration’s mixed messages and shifting strategies also are likely to prolong the uncertainty. After all, even if Trump decided to pause or rescind some or all of the tariffs, businesses and investors now have probably been trained not to trust him. As with those of us who live in Missouri, their attitude might well be, “Show me” before they let down their guard and start making normal long-term decisions again.
• It’s also important to remember that the epicenter of the trade war is China. In response to Trump’s threat to impose an additional 50% tariff on China, the country’s commerce minister today said, “If the US insists on its own way, China will fight to the end . . . China will resolutely take countermeasures to safeguard its own rights and interests.” We judge that the Chinese leaders should be taken at their word on this, which suggests a prolonged US-China trade war.
• The ebb and flow of statements and potential tariff adjustments will certainly spark some rallies in the markets. Indeed, Japanese and US stocks today are rebounding on signs from the White House that it is open to negotiations. Given the discussion above, we think investors should be skeptical that a long-lasting rebound can be established so easily.
• Investment strategy should therefore make full use of the various tools available to manage risk, from proper diversification to meaningful positions in safe-haven assets such as US Treasury obligations, defensive blue-chip stocks, and gold. Such tools may not protect against all losses, but they are likely to help reduce gut-wrenching volatility.
• At the same time, our geopolitical, economic, and financial market analysis teaches us that today’s global transition and the Trump administration’s specific tariff policies have created big, long-lasting trends that are likely to be investable. For example, we have long championed high quality, dividend paying value stocks. Our Asset Allocation programs have also taken positions in European defense stocks. We continue to look for new opportunities amid the current market volatility.
• While investors may be tempted to sell their risk assets in times like these, it’s important to remember that such a strategy is very hard to pull off as it requires being right about both the time to sell and the time to get back into the market to take advantage of any rebound. Because that’s so difficult, the better approach for many investors is probably to ride out the storm and resist panic selling.
• Finally, while we might quibble with whether Trump really needed to impose his tariffs and other radical economic policies so abruptly and idiosyncratically — rather than telescoped beforehand and implemented step-by-step over time — we can appreciate the effort to address the US’s longstanding trade deficits, budget deficits, and debt. Even if Trump’s approach has created a lot of uncomfortable volatility and raised the risk of recession, the policies may well prove positive in the longer term. Time will tell.

China: State-owned investment fund Central Huijin yesterday afternoon confirmed that it had bought Chinese “A” shares to support the domestic stock market amid a rout sparked by the new US tariffs on China. The market intervention highlights the policy tools that Beijing is likely to roll out to protect the Chinese economy from the new tariffs. Other potential measures include interest rate cuts, a devaluation of the renminbi, and increased fiscal spending.

Turkey: In an interview with the Financial Times, Finance Minister Mehmet Şimşek said the global economic and market turmoil around the new US tariffs could actually be positive for his country. According to Şimşek, falling energy prices would help reduce Turkey’s current account deficit and help the country rebuild its foreign reserves. It would also help bring down consumer price inflation. The statement is a reminder that some well-placed countries could well see their geopolitical or economic positions enhanced in the new environment.

Russia-Ukraine War: Ukrainian President Zelensky today confirmed for the first time that Kyiv’s forces are now fighting in the Belgorod region of Russia, marking a second incursion after Ukrainian troops seized part of the Kursk region last summer. Even though the current US-brokered deal to stop attacking each other’s energy infrastructure is faltering, the new Ukrainian incursion is probably designed at least in part to be leverage in any broader peace negotiations between Moscow and Kyiv.

Canada: In its first-quarter business outlook report yesterday, the Bank of Canada said 32% of surveyed businesses indicated they are now planning for a recession in the coming year, up from an average of just 15% in the last two quarters of 2024. The figures confirm other reports suggesting the Canadian economy is already slipping into a contraction in response to the new US tariffs on Canadian goods.

United States-China-Panama: US financial firm BlackRock’s deal with Hong Kong-based CK Hutchison to acquire dozens of ports around the world, including key ports at either end of the Panama Canal, now appears to be in trouble after a Panamanian official said Hutchison owes $300 million to Panama and violated some Panamanian regulations. If the deal is scuttled, it would likely further fray US-China relations, which had been unexpectedly calm over the first two months of President Trump’s administration.

• The BlackRock-Hutchison deal had been pushed by Trump to reduce Chinese influence over the Panama Canal, but General Secretary Xi was reportedly angry about it when he eventually got wind of it.
• Because of Xi’s opposition, it would not be a surprise if covert Chinese influence was behind the wrench being thrown into the deal. At this point, however, it isn’t entirely clear whether the agreement will be killed definitively.

United States-Iran: Yesterday, the US and Iran said they will begin negotiations over Tehran’s nuclear program. However, the statements were contradictory, with President Trump saying the talks would take place directly between US and Iranian officials and the Iranians saying the talks would only be indirect through intermediaries.

• If the talks take place and are successful, the eventual result could be an end to US sanctions on Iran and more Iranian oil freely trading on global markets.
• If the talks fail, the chance of a US-Israeli attack on Iran would increase. Any such attack would likely be highly disruptive to the global economy and energy supplies.

US Military: Reports yesterday said Vice Admiral Shoshana Chatfield, the US representative to the North Atlantic Treaty Organization’s military committee, has been abruptly fired. That makes Chatfield one of about a dozen top military and national security officials fired after a meeting last week between President Trump and right-wing conspiracy theorist Laura Loomer. The firings have raised questions about who controls or influences top US national security officials and how the administration is managing US national defense.

• Chatfield was previously the first woman to head the US Naval War College in Newport, Rhode Island. While she headed the college, she was accused by conservative groups of being overly concerned with diversity, equity, and inclusion initiatives.
• Other officials recently purged include the head of the National Security Agency and several staff members of the National Security Council who Loomer reportedly accused of being disloyal to Trump.

US Fiscal Policy: The Centers for Medicare and Medicaid Services yesterday said it will provide a 5.06% hike in the rate at which it pays health insurers participating in the Medicare Advantage program. The increase, which takes place in 2026, is more than double the 2.23% hike proposed by the Biden administration in January. Since the new figure signals the Trump administration will be unexpectedly supportive of Medicare Advantage, the news will likely give a boost to health insurers’ stocks today.

US Tax Policy: A Bloomberg report yesterday said the Trump administration is mulling a potential exporter tax credit to help firms damaged by other countries’ retaliatory tariffs on US goods and services. Administration officials remain divided on the idea, which in any case would require Congressional approval.

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