Trump tariff turmoil: Navigating the volatility

Qihang Yao, CPFA

© Wall Street Alliance Group

In a bold move, the Trump Administration has declared sweeping reciprocal tariffs. Here are the key takeaways for how to prepare for the Trump tariffs.

Why are there additional tariffs?

The U.S. has declared reciprocal tariffs to address trade imbalances in the Global Economy. For many of our largest trade partners, the U.S. is charging their exports far less than what they are charging American exports. The Trump administration has emphasized that these tariffs are meant to counter these unfair trade practices. By employing these taxes, the goal is to encourage companies to move production back to the U.S. while also reducing the trade deficit.

It is also important to note that these tariffs are intended to relieve the widening U.S. Government Spending Deficit. In 2024, the Federal Government ran the largest ever budget deficit outside the COVID-19 pandemic. President Trump hopes that the income from additional tariffs will significantly reduce that figure by up to $400 billion a year, according to a report from JP Morgan Research.

Finally, Trump understands that with Midterm Elections a little more than a year away, he needs to implement much of his agenda now. Having tackled corporate taxes in his first term, the President intends to target his undivided attention towards tariffs in his second.

What are the effects of these tariffs?

The impact of these tariffs on the global market has been significant. They have led to increased costs for imported goods, which can result in higher prices for consumers and disruptions in global supply chains. As of Saturday, April 5th, the 10% “Blanket Tariff” had gone into effect globally, with nearly 60 more countries will have higher tariffs starting on April 9th. This will take the average effective tariff from ~10 % to ~23%.

The individual tariffs vary by country, but the calculation was based off a formula that divided the difference between the exports to the country by the U.S. and the total imports from the country to the U.S. by the total imports from the country to the U.S. For some countries, such as Vietnam, that rate was as high as 46%. There have been pushbacks from some of the affected, with China announcing 34% retaliatory tariffs on April 7. The Trump Administration then announced an additional tariff on Beijing, bringing the total tariff to 125% effective April 9. Also on April 9, the president announced a 90-day pause on most reciprocal tariffs.

The tariffs have caused volatility in both the U.S. and global financial markets, with fears of a potential global recession rising. As of market close on April 8th, 2025, the S&P 500 had fallen about 15%. The famous ‘Magnificent 7’ fell on average about 25%, with Tesla losing about 42% of its value at the beginning of the year. The MSCI World Index slipped about 2% while the S&P US REIT Index shed about 12% in the same time. Stocks rebounded on April 9 after Trump announced the 90-day pause, but volatility remains.

On the other hand, The S&P 500 Bond US Bond Index rose ~2% YTD. As gold prices hit record highs last week, the S&P GSCI Gold Index gained ~12%. The question is why?

If we revisited the S&P 500’s sector breakdown back in December 2024, roughly 31% of the S&P 500 was invested in the pure technology sector, according to Morningstar. Going into 2025, we found technology to be the most overvalued stock sector. As the New Administration’s policies take shape, we see the main brunt of the sell-off in technology stocks as investors eagerly trim their gains from 2023 and 2024. At the same time, Trump’s tariffs have severely impacted the supply chains of large tech companies such as Apple and Nvidia, hence why we see that since New Years Day, the technology sector ETF, XLK, has fallen in value by about 21%, much like that of the tech heavy Magnificent 7. The threat of increased tariffs and Trump’s hard negotiation tactics have sent international stocks plunging. REITs have faced stubbornly high mortgage rates which have led to increased borrowing costs resulting in less profitable real estate portfolios.

Created by Qihang Yao, CPFA, data from S&P Global, MSCI and Yahoo Finance.

Created by Qihang Yao, CPFA, data from S&P Global, MSCI and Yahoo Finance.

What are the best- and worst-case scenarios?

The way we see it, the best-case scenario is as follows: by enforcing hardline tariffs across the globe, America remains the leader of the global economy. Proposing these policies have already bore fruitful discussions between Japan, South Korea and Israel, all who are major trading partners. Moreover, reduced government spending will shrink the Spending Deficit, paving the way for the much-anticipated income tax cuts. Altogether, less corporate regulation and lower interest rates would complete the trifecta of less taxes, less regulation and lower cost of borrowing which will drive the economy to new heights.

Conversely, should the tariff agenda continue to escalate geopolitical between the U.S. and its trade partners then we could see more short-term volatility and potentially a trade war. The tariffs in the short term will result in higher prices, fueling inflation. This would in turn tank demand for goods, slowing down consumption which slows down business growth and shrinking GDP. If such a trade war were to be prolonged, then we could see a global bear market, where companies heavily reliant on international trade would suffer the most. However, this is highly unlikely, given that many of the U.S.’s trade partners have already approached Washington for talks.

Should I sell all my stocks?

With the recent pullback, investors often ask, “If I am invested in the stock market now, should I sell everything and wait for the market to drop further and then buy?”.

It is not advisable to try to time the market. Selling everything could result in missing out on potential rebounds. Any positive or negative headlines regarding tariff policy or economy could send the markets spiraling in either direction. Even false headlines, such Monday’s rumor of the White House considering a 90-day pause on tariffs resulted in the S&P 500 shooting up nearly 7% in 40 minutes, raising nearly $4 trillion dollars in less than an hour.

There are many stories of those who had incorrectly timed the market and paid the price for it, and history has shown time and time again it is far wiser to remain invested in the market than to time it.

What areas of the market should I look to invest in?

As the market pullback unfolds, opportunities will unfold in specific areas of the market.

We feel that AI will continue to grow under Trump through a combination of capital expenditure and less regulation. U.S. data-center power demand could nearly triple in the next three years. We like stocks in that area and see the demand for their equipment to manage and distribute power increase as more electricity is needed.

• On that same tangent, we remain bullish in the utilities sector. As R&D remains high for AI, we expect the key providers of the necessary electricity for AI development to benefit significantly.
• With the recent drop in oil prices, energy becomes more undervalued and continues to remain one of the most valuable sectors of the stock market to gain exposure to. It is an area that will drastically benefit from the deregulation that the Trump Administration is expected to usher in.
• Likewise, another sector to benefit from deregulation is the financial sector. Stocks in this area of the market are already benefiting from lower short-term rates as long- term bond yields are rising, which makes lending more profitable. This Trump administration will likely scale back regulation on financials.

While there is no way to predict with pinpoint accuracy what the economy and the markets will do, we believe that the areas of the market we have identified above can provide some guidance for how to position your portfolio for the remainder of the year.

Qihang Yao, CPFA, is an Investment Specialist at Wall Street Alliance Group.

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