Hi, my name is Kristy Akullian, here with another Macro Minute.
The United States has sharply escalated its trade protectionism. A new 10% tariff has been announced for most U.S. imports, alongside higher duties across dozens of countries including China and the European Union. Canada and Mexico have been spared new levies for now. The key? How long these elevated tariffs last and their impact on growth, inflation, and corporate earnings.
Here are our initial takeaways on the White House’s tariff announcements:
1. The dust is still settling on the details. We think they add up to a U.S. average effective tariff rate of between 20-25%. The rate is set to be higher than we – and markets – had expected. We see a bigger drag on growth and more inflation pressures.
2. Also key is how long policy uncertainty persists – the longer it does, the greater the potential damage to economic activity. We expect to continue to see more volatility in the weeks and months ahead and near-term pressure on U.S. equities.
3. Still, we think policy uncertainty could dissipate in coming months and could be accompanied by tax cuts and deregulation. Even if sentiment is weakening, we still see solid U.S. corporate and economic fundamentals, Our base case? Sluggish growth and sticky inflation, not recession.
So, what does that all mean for your portfolio? While the full impact remains uncertain, these tariffs introduce new risks and opportunities. Given ongoing policy uncertainty, we believe a focus on resilience and risk management remains key.
We like quality at the core of portfolios. But for investors who are worried about economic growth and want to reduce risk in their portfolio, they can also consider Minimum Volatility strategies that may potentially limit drawdowns, and diversify away from some of the most concentrated parts of broader indexes. Inflation-protected bonds can also make sense given the risk that inflation rises from tariff implementation. Finally, we see a strong case for alternative asset classes and strategies to serve as additional diversifiers beyond a traditional 60/40 portfolio. We like gold as a potential hedge against geopolitical volatility, and market neutral strategies that can potentially do well in a variety of macro environments.
The situation remains fluid. A bright spot may be more clarity on the policy front. We know that above all, markets hate uncertainty. As more information becomes available, and investors become more confident, a positive catalyst for markets could develop. For investors who want to position for such an outcome, we like systematic, active, rotational strategies that are purpose built to adjust with changing market conditions.
In times of heightened volatility, head over BlackRock Advisor Center or iShares.com to see how our investors are thinking about markets.
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