LEVATUS Perspective | Certainty, Uncertainty, and Significance
As elements of global trade shift, investor risk appetite is swinging with increasing intensity.
Photo by Sergei Gussev
President Trump’s sweeping tariff policy has injected fresh uncertainty into global markets, amplifying concerns around trade dynamics, economic stability, and geopolitical strategy. In this turbulent environment, investors are challenged to disentangle what is certain, what remains uncertain, and what is truly significant.
Hello everyone, We are actively monitoring the tariff situation, and sharing this follow-up to our March 2025 client investment note.
Executive Summary
On April 3, 2025, President Trump unveiled a significant tariff policy, imposing a 10% baseline tariff on all U.S. imports, with escalated rates of 54% on Chinese goods and 25% on imports from Canada and Mexico. Markets reacted swiftly, with the S&P 500 declining 4.8%—its steepest drop since June 2020—and the Nasdaq shedding nearly 6%. The 10-year Treasury yield fell from 4.20% to 4.04% as investors flocked to safety. This report analyzes the potential short- and medium-term implications for equity and bond portfolios, offering perspective on risks, opportunities, and strategic considerations.
Equity Market Analysis
Market Reaction and Drivers
The tariff announcement sparked a broad-based equity sell-off, reflecting concerns over:
Profit Margin Compression: Higher import costs threaten sectors reliant on global supply chains, such as technology (e.g., semiconductors) and industrials (e.g., automotive).
Economic Growth Risks: Reduced trade flows and retaliatory measures from key partners could dampen GDP growth, with estimates suggesting a potential 0.5–1% drag if fully implemented.
Inflationary Pressures: Rising input costs may erode consumer spending power, particularly impacting discretionary sectors.
The S&P 500’s 4.8% decline was led by tech (-6.2%) and consumer goods (-5.1%), while small-cap indices like the Russell 2000 outperformed (-3.2%), hinting at a tilt toward domestic exposure.
Sector Implications
Headwinds: Technology, industrials, and consumer discretionary face heightened risks due to supply chain disruptions and cost increases.
Potential Beneficiaries: Domestic manufacturers, energy, and select materials firms could gain if tariffs bolster “Made in America” production.
Defensive sectors: Utilities and healthcare may offer some stability amid uncertainty but are not immune to slower growth.
Portfolio Considerations
As mentioned in prior reports, we expect elevated volatility to continue as markets assess tariff enforcement and global responses. Additional downside in equity markets is likely in the near
term if tariffs persist. Portfolio diversification, an emphasis on high quality companies with financial flexibility, and dry powder to take advantage of opportunities are all important strategic factors in this environment. Many of the companies that will drive growth, innovation, and change in the coming decade are now ‘on sale’.
During President Trump’s first term the initial tariff action against China caused a 20% pullback in markets, lasting from October 2018 to December 2018. By May of 2019 markets had fully recovered. While every situation is different, and announced tariffs are broader this time, good companies have a history of adjusting over time. The concept of tariffs was well advertised, and the path toward de-globalization is not new.
Bond and Funding Portfolio Analysis
Yield Curve Dynamics
The flight to safety drove a 16-basis-point drop in the 10-year Treasury yield to 4.04%, flattening the yield curve. This reflects concern that tariffs may slow economic momentum, increasing demand for high-quality fixed income. Short-term Treasuries rallied, with 2-year yields dipping to 3.85%, while longer-duration bonds saw more muted gains due to inflation fears.
Fixed-Income Outlook
High-quality, short-duration securities like U.S. Treasuries are well-positioned as safe havens. Inflation risks could cap upside for bonds with maturities beyond 10 years. Client portfolios are well positioned with high quality short duration portfolios that have moved up in value as equity market volatility has increased.
High yield and corporate bonds, which we have avoided, have come under some pressure recently, as tariff-sensitive industries face cash flow strain.
Portfolio Considerations
Funding account and bond allocations prioritize financial flexibility. Short-duration assets can buffer volatility. The Federal Reserve’s response—potentially pausing rate cuts if inflation accelerates—will shape the next leg of bond performance.
Macroeconomic Context
Tariffs are historically negotiation tools, and their ultimate impact hinges on:
Implementation Scope: Partial rollbacks or exemptions could temper market fallout.
Global Retaliation: Tit-for-tat measures from China, Canada, and Mexico may escalate trade tensions.
U.S. Federal Reserve Policy: A dovish pivot could support risk assets; a hawkish stance might amplify bond yield volatility.
Current data suggests a 60% probability of sustained tariffs through 2025, per futures markets, though political and diplomatic developments remain fluid. This outcome would be likely to pressure earnings and market multiples (PE) in the near term. As an example, if earnings were to decline by 5% and stock multiples were to return to levels reflecting slower growth, this implies an additional 5-15% of downside in U.S. equity indexes in the near term.
Certainty, Uncertainty and Significance
The tariff announcement puts one piece of uncertainty behind us, but the scale and scope of the announced framework have introduced another level of significant uncertainty. We expect volatility to continue in the near term. Appropriate allocation to Funding allows flexibility to not only weather this volatility but take advantage of the opportunities it presents.
Client equity portfolios remain well diversified, emphasizing companies with strong margins, strong cash flow, and strong balance sheets. These attributes support financial flexibility in turbulent times, flexibility that allows well-managed companies to take advantage of opportunities as others panic. In addition, companies set to benefit from important trends like digitization, automation, de-regulation, and the application of AI continue to be an emphasis in growth portfolios.
As we mentioned in our year-end report, the application of artificial intelligence (AI) and large language models (LLM) is expanding beyond a few tech giants, reaching a broader segment of the economy. Even amid recent volatility, we see evidence of this trend beginning to take hold across various sectors, creating long-term growth opportunities.
The market panic and indiscriminate selling of the past weeks has given us the opportunity to deploy some of the dry powder held in growth accounts, to add exceptionally well positioned companies at good prices. We expect volatility to continue this year, creating long-term buying opportunities in companies and industry groups that will be important for years to come.
Summary
The present economic environment is a mix of headwinds and tailwinds. Growth may moderate in the near term, driven by hesitancy in consumer and business spending amid uncertainty and the fading effects of prior fiscal support. However, this is tempered by robust labor market conditions, productivity boosts from technological advancements, innovations, and a steady credit landscape. Moreover, if economic conditions deteriorate, the U.S. Federal Reserve has room to lower interest rates to bolster activity, providing a potential policy backstop.
This softening economic backdrop poses risks but also creates openings for investors with a forward-looking approach. Strategies such as diversifying holdings, preserving liquidity, prioritizing top-tier assets, and exercising patience during market turbulence can position investors to weather challenges and capitalize on long-term growth potential.
As we’ve discussed previously, our team dedicates significant time with clients to evaluate asset allocations in order to ensure sufficient ‘Funding/Safety’ reserves. In periods of uncertainty like this, the value of this analysis becomes especially clear, enabling clients to navigate equity market swings while harnessing the substantial benefits of compounded returns over extended horizons.
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ABOUT THE AUTHOR
Susan Dahl is a seasoned executive, industry leader, and dedicated client advisor, with over thirty years of international and domestic financial experience. Susan is known for her ability to unravel complex questions, and has a steadfast commitment to well designed process. This background has translated directly into her work on investment process design for private wealth clients, as well the industry leading LEVATUS Integrated Wealth Service model; a modern design that addresses the many ways financial decision making impacts financial security, relationships, and sense of purpose across generations.. A deep and diverse background that extends from global investing, to risk management, to process development and planning, has laid the groundwork for an advisory solution that asks more of wealth. Susan shares some her most recent work in this TEDx , Can Happy Make You Money?
President Trump’s sweeping tariff policy has injected fresh uncertainty into global markets, amplifying concerns around trade dynamics, economic stability, and geopolitical strategy. In this turbulent environment, investors are challenged to disentangle what is certain, what remains uncertain, and what is truly significant.