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The Bid - The 90-day U.S. Tariff Pause - How Should Investors Respond? [April 15^th]

Episode Description:

On April 9th, the U.S. administration announced a 90-day tariff pause on country-specific reciprocal tariffs, exempting key tech imports while maintaining high tariffs on select Chinese goods. This decision introduced extraordinary volatility to global markets. Notably, the S&P 500 rebounded nearly 6% last week, marking one of its largest daily jumps in history. Meanwhile, long-term U.S. Treasury yields spiked, reflecting investors' altered risk perceptions in light of the tariff adjustments. At the same time, the U.S. dollar tumbled to three-year lows against major currencies, highlighting concerns about future currency valuations in these tumultuous times. But the question remains, how should investors respond when considering the implications of prolonged uncertainty, including potential recession risks, impacts on corporate investment, and consumer spending?

In this episode of the Bid, Oscar Pulido is joined by Alex Brazier, Global Head of Investment & Portfolio Solutions and Helen Jewell, Chief Investment Officer for EMEA at BlackRock. Alex and Helen will help us unpack the details of this tariff pause, its effects on market dynamics, and provide strategic insights for investors considering how to navigate volatile markets.

Sources: U.S. stocks see biggest 2-day wipeout in history as market loses $11 trillion since Inauguration Day Market Watch, April 4^th 2025; The 'Trump Thump' Market Swoon Was Historic WSJ April 5^th 2025; Stock market posts third biggest gain in post-WWII history on Trump’s tariff about-face CNBC, April 9^th 2025

Key Takeaways:

• The episode highlights the severe impact on the stock market, with a notable two-day drop of 10.5% and a record loss of $6.6 trillion in market value, followed by a substantial one-day gain after the tariff pause announcement.
• Experts Alex Brazier and Helen Jewell discuss strategic insights for investors, emphasizing the importance of staying invested and focusing on long-term market trends rather than trying to time the market.
• The episode concludes with discussions on ongoing market uncertainties and the need for investors to remain vigilant about potential risks affecting corporate investments and consumer spending.

Tags: Tariff pause, us tariff pause, The Bid, The Bid Investing podcast, Tariff War, Tariff Relief, Investing Insights, Tariffs and Economy, Tariff, Tariffs

Written disclosures in each podcast platform and each episode description:

This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.

Reference to the names of each company mentioned in this communication is merely for explaining the investment strategy and should not be construed as investment advice or investment recommendation of those companies.

For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures

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<<TRANSCRIPT>>

Oscar Pulido: On April 9th, the US administration announced a 90 day pause on country specific reciprocal tariffs. Exempting Key Tech imports while maintaining high tariffs on select Chinese goods, global markets experienced extraordinary volatility in response to this tariff pause. The s and p 500 rebounded nearly 6% last week and had one of its largest daily jumps in history.

Meanwhile, long-term US treasury yields spiked and the US dollar tumbled to three year lows against major currencies. The question remains, how should investors respond when considering the implications of prolonged uncertainty, including potential recession risks, impacts on corporate investment and consumer spending?

Welcome to the bid where we break down what's happening in the markets and explore the forces changing the economy and finance. I'm Oscar Polito.

Coming up on The Bid, we continue our market coverage following tariff policies and their impact on the global markets. We're recording and publishing this episode on April 15th to help us navigate the recent market moves. I'm joined by Alex Brazier, global Head of Investment and Portfolio Solutions at BlackRock. And Helen Jewel, chief Investment Officer for EMEA at BlackRock. Alex and Helen will help us unpack the details of this tariff, pause its effects on market dynamics, and provide strategic insights for investors considering how to navigate volatile markets.

Helen and Alex, thank you so much for joining us on The Bid.

Helen Jewell: It's great to be here.

Alex Brazier: Fantastic to be back, Oscar.

Oscar Pulido: Helen, welcome back. I know we had you on recently to talk about infrastructure and Alex, it's been a while, it's really good to have you back. We have some sort of pattern where we seem to invite you when there are really complex things going on in the markets, and we need someone to help explain it to us and that seems to be you.

So, Alex, let's start with you. The last week has seen a lot of volatility in the markets. I should mention, we're recording this on Tuesday, April 15th, just to give a sense of what point in time we're in, but maybe you can give us an overview of what has happened in the last week with respect to tariffs?

Alex Brazier: What has happened in the last week, one day, whole books are going to be written about what happened last week. So, let me just try and summarize very briefly. I think there are three broad buckets of things that were, I think, historic about last week. The first is in fixed income markets we saw long-term interest rates in US Treasuries have their biggest selloffs for decades. The 30-year US Treasury yield had its biggest weekly rise since 1987. And both it and the 10-year US Treasury yield were up about 50 basis points in a week.

Now, they've stabilized a bit since, but that market remains pretty volatile. Now to some extent, the fundamentals have been in place to drive long-term interest rates higher for a while.

We've got sticky wage growth, signs of labor shortages, sticky inflation, and most importantly in the United States, we've got a fiscal position- deficits and debt levels -that's historically very large and a lot of issuance coming up for the market to digest. So, the fundamentals were in place for yields to rise.

Then we also saw some mechanics of the treasury market amplifying the move. Our trading teams here at BlackRock have been monitoring what's going on, and they think there was some pressured selling from hedge funds that had effectively bet on US treasury yields falling relative to the equivalent interest rate swaps and futures. Now, it was all pretty orderly, it wasn't like we saw at the outset of Covid, but all of that combined for a move in fixed income markets of pretty historic proportions. So that was the first thing.

Second thing that was really notable in the last week is that even as interest rates rose, the US dollar weakened. And that was suggestive of international investors moving money from US assets to elsewhere in the world. And we saw in exchange traded products, particular flows from the US into Europe. So that was the second striking thing about last week.

The third striking thing about last week was of course, that on the back of all those moves in markets perhaps prompted by those moves in markets, we saw a big change in the policy of the US administration. We saw a pause announced on what are called reciprocal tariffs on 90 countries for another 90 days. So that leaves us with a baseline 10% tariff on imports into the United States, plus extra tariffs on autos and steel. And at the same time, we saw tariffs on China - Chinese imports into the US - raised to 145% after a sort of tit for tat escalation between Washington and Beijing. that leaves us at a level of tariffs that many analysts think is inconsistent with doing much bilateral trade between those countries. And it's north of where the president talked about on the campaign trail. Now we saw at the end of last week an exemption announced for electronics products, given the disruption that tariffs at those levels might have caused to important supply chains, which just goes to show actually that this decoupling process is going to be really hard given the way supply chains are wired. But then we saw, to top it all off, an announcement that we could expect new sectoral tariffs on pharmaceuticals and semiconductors to come.

So, big moves in fixed income, interesting moves in the dollar and capital internationally, and a big change in policy. But this is not the end. It's probably not even the beginning of the end. It may be the end of the beginning, all of this, and there's going to be more volatility to come.

Oscar Pulido: Alex, you mentioned there will be whole books written about this past week, I think you've given us the first few chapters. You talked about the fixed income markets, what's happened in currency markets, and then highlighted the evolution in tariff policy. But Helen, one thing we haven't talked about yet is the equity markets. How have they reacted to all this news?

Helen Jewell: Well, of course the equity markets, have had a really rough few weeks. If we look at the implications post Liberation Day, there was a two day fall of just over 10% in the markets making it one of the worst two day drops since the s and p was first created. Up there you've got the 1987 crash, you've got the peak of the financial crisis, and of course the 2020 pandemic.

What's also really important is that post this pause announcement, you then saw the S&P post the third biggest one they gained since World War II. So, that pause was incredibly important in terms of the market moves as well. In some ways that's been what's the most challenging for investors because that has introduced real whipsaw risk into the market.

You've seen significant moves very quickly, both on the downside and then on the upside, and the VIX has reached the highest level that we have seen since the Covid pandemic at around 50. And this uncertainty in the markets and the uncertainty of how long the uncertainty lasts is something which is of concern for investors.

Now, what's been weird is that the last couple of days, so as you say today's Tuesday, Friday and, and Monday, although there have been a few announcements in terms of tariffs actually, in terms of the market reactions, we've seen a few swings, but nothing to the kind of level that we had seen. So it feels that the moment that although the market is moving a little bit, it's certainly pausing just to see exactly what comes through in the next 90 days. So it's going to be an incredibly important 90 days for markets. And as Alex says, it probably is the end of the beginning and I'm looking forward to the middle segment when we can actually start to understand what is going to happen in the tariffs and we can start modeling out what those implications will be for corporates.

Oscar Pulido: You mentioned the whipsaw risk. In the last week, we spoke to Glenn Purves, in the BlackRock Investment Institute and also Gargi Pal Chaudhuri, and we talked about the need to stay invested in these markets because markets can move pretty quickly, and in fact, the day after we spoke to them, Helen, as you noted, markets, bounced back. And so, illustrating the challenge for equity investors now of what to do. And our message was stay invested because, volatility is moving in both directions.

Alex perhaps to come back to you, we talked about equity markets, but you also mentioned at the very beginning of your comments, the importance of the move in the bond markets and the fact that interest rates moved higher. I think historically when we see periods of market volatility, we've been accustomed to seeing the US treasury market rally in those periods. In other words, interest rates going down. So, what is the significance of interest rates going up? Does that mean that US government bonds are no longer the ballast in portfolios that they used to be?

Alex Brazier: I think it means they're not as reliable a ballast in portfolios that they used to be. Old school portfolio construction was really about a broad index of stocks and a broad index of bonds. And you could pretty much rely on the fact that when one went down, the other went up. So when stock prices fell, maybe in a recession, you knew the interest rates were going to fall and bond prices would rise.

So, there was this neat negative correlation between them- they were a nice natural hedge for each other. And that's no longer reliably the case as we've seen recently. We are in a more inflationary world. We're in a world with bigger fiscal deficits and higher debt levels. So long-term bonds, just not providing that ballast, as you put it, that they used to.

So, investors are thinking about, well, how do I build a portfolio to stabilize things in some other way now? And there are various ways to do this. We've seen lots of flows into gold, for example, as an alternative diversifier, and that's done pretty well over the last year in performing that role.

But there are other ways too, and one way, historically, that we've seen investors taking more interest in recently is to effectively take down your exposure to the broad index of stocks and the broad index of bonds, and instead replace it with strategies that make relative calls within those markets. So, they might take a long exposure to one part of the stock market and a short exposure to another. So, where the broad market goes isn't really relevant, it won't have much of a correlation with that. The return will be determined by whether that relative call pays off. Now, if you do that in this sort of environment, you can actually build portfolios that are more stable, but still generate return. And what you're trying to do is just reduce the correlation of your portfolio with those broad stock indexes and broad bond indexes. But overall, it's an example of how when bonds don't work as a reliable ballast, like they used to, actually it requires some pretty hard thinking about how to build portfolios and how to diversify them.

Oscar Pulido: And that's a theme that we've been, discussing actually for quite some time with, our guests, which is we're in a new market regime, and that new market regime requires investors to be more active, more granular, and perhaps more diversified in their portfolios than they historically have. Helen, what questions are you getting from investors and how are you thinking about positioning a portfolio during times like these?

Helen Jewell: Well, the first question we are getting is should they stay invested, the answer is absolutely yes, you should stay invested because of the whipsaw risk. But then the next question is, okay, well if I'm staying invested, what do I need to do? And that's when this diversified point comes out.

You shouldn't at this point in time, be significantly over or underweight anything, whether that is from a sector perspective or indeed a geographic perspective. Make sure portfolios are sensibly diversified, both in terms of the balance between equities and bonds, and also other asset classes, alternatives, and gold as Alex mentioned as well.

So diversified portfolios remain key. We're also maintaining a more defensive stand overall. This isn't the time to be looking down for beaten down turnaround or recovery names. This is the time to be thinking about where is there quality, where is there strength in the balance sheets, and where is their robustness and resilience in cash flows and earnings and margins?

And the other thing that we are very much keeping an eye on is valuations and valuation levels. What we've seen at the moment is a lot of the stocks that are moving significantly are those where the valuations have been at the higher end of the scale, where they've seen significant run-ups. You're seeing a bit of an anti-momentum move in a lot of pockets of the market at the moment. So, valuations remain incredibly important, and Europe is an area, that from a valuation perspective, looks interesting.

So, where valuations are compelling are really interesting places to look again, both in terms of a geographic perspective, but also in terms of a, a sector and a stock specific perspective as well. If you've got conviction on names that have seen a significant pullback, maybe it's the time to be leaning into those names. But staying invested, being diversified, and keeping an eye on valuations, they're the key things that we're telling investors right now.

Oscar Pulido: Helen, you talked earlier about that there's uncertainty and specifically there's uncertainty about how long that uncertainty will last. So, what are you keeping your eye on right now to feel confident that in fact, we've put that period of uncertainty behind us?

Helen Jewell: I think the period of uncertainty is going to keep going for a little bit longer. We've had a lot of conversations about 'peak uncertainty'. I'm not entirely sure what that means, and I feel the peak uncertainty was probably the day of the announcement of the tariffs and everything from now on in perhaps is less unexpected and more baked into numbers.

In terms of what we are looking at, I always focus on the things that I think I can understand and we are just starting to go through the earning season. It kicked off last week in the US and it started this week in Europe as well. Now it had been a little bit dismissive of this earning season. I looked back and I thought, well, the Q1 numbers are just historic numbers and it's just going to be too soon for corporates to give any kind of sensible guidance of what they might do, we're just going to have an air pocket. But I realized I was wrong. The earning season is going to be incredibly important. Important, both in terms of the narrative, but also understanding which companies are really able to build on the margins that had already been quite high last year. We were seeing high margin level through 2024, and maybe therefore are going to have more of a buffer to absorb things like tariffs that might come through.

So this earning season is going to be incredibly important for us to really assess which companies are well placed, high quality, have those moats that are therefore going to enable them to navigate this period of uncertainty, which I'm sorry to say I think is going to be with us for a little bit longer.

Oscar Pulido: Alex, what are you looking out for in the near future?

Alex Brazier: Well, I start by answering that with, something we've learned from investors. We've been surveying investors quite a lot through this period, and they've been pretty consistent in staying invested.

60% of respondents typically say, I'm not doing anything with my portfolio. So they're listening to Helen in some respects. 20% say I'm looking to defend a bit more, looking to take down some risk and 20% say, actually I'm looking for opportunities here. In some ways, I think they're all right. So definitely stay invested, but we are looking for new opportunities that emerge. There are going to be opportunities after a period of volatility like this to go a bit more on the offense.

People are going to need to be agile in their allocations, and they have been, we've seen record trading volumes in exchange traded products over recent weeks suggesting a lot of money is actually in motion. But as Helen describes, this is probably not an environment where just leaning into the broad index is necessarily the best approach.

The dispersion that's here, the importance of quality names and resilience can't, I think, be under-emphasized. So, careful selection and looking for opportunities. So that's the first thing.

Second, thing we're looking for is protection in the portfolio against downside. Equity volatility has come down, but it's still high. And as Helen says, uncertainty is going to be here for some time to come. The administration's going to be trying to negotiate 90 trade deals in the next 90 days. We've got more sectoral tariffs coming. So we're looking for ways like 20% of, investors to defend in the portfolio as well.

And for example, indexes of stocks that are designed around stocks that typically aren't very volatile through the economic cycle, they've done very well year to date. They're up year to date when the broader S&P index, for example, is down 8%. So looking for ways to manage that volatility. And then thirdly, as I said before, we're looking for ways to diversify portfolios in diversified ways. We're looking for alternative strategies now that we can no longer fully rely on bonds in the same way we used to, which is something that's actually playing out in the money that's in motion.

We're seeing money sometimes move out of higher risk, fixed income and equities, but not in the traditional way into long-term bonds- we're seeing it move into shorter term bonds and inflation protected bonds. So investors are really getting their hands around this need to diversify the diversifiers in the portfolio.

Oscar Pulido: Interesting when you talked about the results of the survey, when you talk about the investors that you've been speaking to, the answers varied a lot, but I love what you said, which is they're all right. In other words, stay invested, and it's more about what you're doing within your portfolio in these times that matters most.

Helen and Alex, I'm not sure if both of you are naturally authors, if you plan on writing a book about this period that we've been through, but I know audio books are a thing so, I think you've given us a start at, what's been going on and perhaps we'll have you back on at some point so that you can tell us more about the subsequent chapters. We appreciate you, giving us this color and we appreciate you doing it here on The Bid.

Helen Jewell: Great to be here. 

Oscar Pulido: Thanks for listening to this episode of the Bid. If you've enjoyed this episode, and if you want to keep up with what's happening in the economy and the latest market trends, make sure to subscribe to the bid wherever you get your podcasts.

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Spoken disclosures at end of each episode:

This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.

For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures

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