At time of writing, tariffs on all Chinese imports will be as high as 245% within 90 days, although some softening of this position is now apparently possible. Tariffs will be 10% on goods from the UK and somewhere in between for almost all of our other trading partners. Smart phones are a notable exception today, but tomorrow is another day and perhaps another policy change. As a result, equity volatility continues to make headlines. The S&P 500 is vacillating around bear market territory as every tariff-related announcement is parsed, reacted to and occasionally overreacted to.
Bond markets have been similarly roiled. On April 11th, yields on 10-year Treasuries spiked as high as 4.58% before settling lower - a 72 bps swing from the beginning of that week. Credit spreads have widened, but so far they have done so in an orderly manner and are still below historical averages. FEG continues to monitor spreads closely, as they may present attractive entry points in some instances.
In private markets, there has been a drop in activity on all fronts. Capital calls and distributions are down markedly from levels that would have previously been considered low. If this environment persists, it may present opportunities to gain access to managers that would have otherwise been closed. Should selling pressure in private equity increase, secondaries could similarly be an area of select opportunity.
Foreign investors have been significant buyers of U.S. assets over the last few years. Due to tariffs and political tensions, many are now selling those assets and sending their capital home. This has put pressure on the U.S. dollar, which is down about 4% since the beginning of the year. If the U.S. enters a recession (not a certainty but the likelihood is increasing), the dollar will face stronger headwinds. But as seen in 2008, a declining dollar and recession are not perfectly correlated. This time around we may see rapid progress on trade agreements that balance, or at least offset, some of the currency pressure.
The idea that the dollar is no longer the safe haven it once was has garnered attention of late. Confidence is declining for consumers and CEOs alike, and uncertainty has risen to the highest levels since the COVID pandemic in 2020. Here a longer-term view may be beneficial. FEG is hopeful that tariffs will be lifted or significantly reduced, which should lead to improvements in both headlines and fundamentals. For America’s decline in status to be permanent, a new safe haven would have to emerge. And therein lies the challenge: Where else are investors going to go?
U.S Economic Policy Uncertainty Has Surged to the Highest Since the Global Pandemic
Economic Policy Uncertainty Index
Data Sources: Baker, Bloom, & Davis, Bloomberg, L.P.; Data as of 3/31/2025
It is important to remember that this level of market volatility is not new. Although, with smaller exceptions, today’s driver has been relatively dormant since Smoot-Hawley in the '30s. There have been 13 bear markets since 1950, lasting an average of 13 months. But 2020’s bear was over in a mere 33 days and the S&P 500 had recovered fully by November. While some economic problems persisted, uncertainty dissipated almost as quickly as it arose and major supply chain issues were resolved.
In his 2021 letter to Berkshire's shareholders, Warren Buffett wrote, “Despite some severe interruptions, our country’s economic progress has been breathtaking. Our unwavering conclusion: Never bet against America.” His wise words and the lesson of 2020 likely have application today.
In the face of rapid fluctuations in policy and markets, we believe it is important to stay the course and maintain an appropriate level of diversification. For many investors this may be an opportune time to strategically rebalance their equity exposure. Nevertheless, should sell-offs continue, the chance to “play offense” could present itself.
FEG's expectation is that some progress on tariffs and trade will be announced before too long. The 90-day implementation reprieve will provide an opportunity to announce progress on negotiations and create a much-needed period of relative calm. When (not if) the situation stabilizes more fully, there will be opportunities to assess and act on relative strengths, weaknesses and risks with appropriate rigor. Those industries, economies and regions best positioned to weather long-term headwinds will of course benefit over the long run. However, the direction and severity of those headwinds have yet to be accurately forecast.
With global trade already falling and the threat of recession rising, this could well be one of the “severe interruptions” Buffett referred to. Bear markets often present long-term opportunity, but in the meantime, it is prudent to position portfolios and expectations appropriately. We hope and expect cooler heads to prevail eventually.
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