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Article | Global Markets Overview

Global Markets Overview: April 2025

By David Hoile | April 23, 2025

From tariff to turbulence, our latest Global Markets Overview explores market volatility and asset price moves in April 2025.
Investments|Retirement
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Asset price moves between April 3 and 17 have been dominated by what President Trump labelled “Liberation Day”. On April 2, President Trump announced a “reciprocal” tariff policy on imports to the U.S. from almost all countries, with tariff levels much higher than expectations. Since then, part of these ‘reciprocal’ tariffs have been postponed for 90 days (April 9), tariffs between the U.S. and China have risen materially, some sectors (e.g., consumer electronics) have been temporarily exempted by the U.S., and new sector investigations have been started (e.g., semiconductors and pharmaceuticals). Our latest April GMO video dives into this further:

Tariffs and turbulence

From tariff to turbulence, our latest issue explores market volatility and asset price moves in April 2025.

The details of the policies, responses by countries, and ongoing uncertainty have been hugely impactful for financial markets in early April. For example, at one point, the S&P 500 had fallen over 20% from its February peak – the definition of a bear market – before recovering partially. However, for most investors what matters most are the asset price outcomes over the next three-to-five years and this requires looking more widely than the recent headlines on trade and tariffs.

  • Yes, the effects of tariffs are to slow economic growth, through weaker consumption and investment, and increase the price level, over the next three quarters
  • However, over the medium-term, while trade and tariff policies matter, other policy areas – fiscal, monetary, and regulation – are also hugely important, e.g., U.S. imports make up only 14% of US GDP
  • Other key policy priorities of the Trump administration are:
    1. Reducing government spending and supporting higher private sector investment
    2. Corporate and household tax cuts
    3. Improving U.S. fiscal sustainability for economic and national security reasons
    4. Big deregulatory shifts across all major U.S. industries
  • These other policies, if executed well, can increase U.S. productivity, incomes, and wealth, and lower inflation. They won't be impactful in the next few weeks or months. However, they will be impactful later this year, and in the next few years especially

A balanced, well-diversified portfolio, with selective downside risk hedges, and macro and security-specific active management, remains the best way to manage the high uncertainties, tariff-related market volatility, and rising US recession risks over the short-term. It also provides the foundation to benefit from the likelihood of pro-growth U.S. policies as they likely play out in future years at cheaper equity valuations.

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Video transcript

Global Markets Overview: April 2025

[MUSIC PLAYING]

SHRIVALI AGARWAL: Welcome to April's edition of Global Market Overview. This month, we dive into the latest changes in US trade and tariff policies and how they've been shaking up the financial markets. Since the start of April, market movements have been heavily influenced by what President Trump labeled Liberation Day.

On this day. President Trump announced a comprehensive reciprocal tariff policy on imports to the US from all countries. Starting April 5, a baseline tariff of 10% was applied to imports from all countries except Canada and Mexico, which already face 10% to 25% tariffs on goods that are not covered by their free trade agreement with the US.

Additionally, higher country-specific tariffs linked to the US trade deficit with US's trading partners were set to begin on April 9. But these country-specific tariffs were later paused for 90 days for all countries, except for those in China.

Our chart shows just how significant these new tariffs are. The tariffs announced on April 2 were more extensive than we expected. And collectively, all the tariffs announced this year have pushed the effective tariff rate in the US from 2.3% last year to the highest levels in a century.

While some tariffs are paused, more sector-specific tariffs are expected soon. The rapid changes in US trade policy, responses from trading partners, like China, and ongoing uncertainty have all increased market volatility. For example, the US equity index, S&P 500, dropped over 20% from its February peak at one point, but then rallied almost 10% in one day just a few trading days later on announcement of a 90-day pause.

Amidst these sharp moves, here's what we think are important considerations for investors. Firstly, the ultimate size scale and the scope of tariffs are not yet clear, but they are expected to represent a notable increase in effective tariff rates on imports into the US. Over the next few quarters, the sharp increase in tariffs is expected to raise the prices of goods in the US and slow US economic growth as a result of weaker consumption and investment.

Compounded by ongoing policy-related uncertainty, this increases the risk of a recession. We still believe the US will avoid a recession this year, though it will likely grow at a much slower pace. More importantly, while tariffs are challenging for the economy in the near term, the full suite of policies will matter most over the next three to five years. This includes trade and tariff policies, but also fiscal, monetary, and regulatory policies.

The Trump administration has flagged several other priorities, including lowering taxes for corporates and households, deregulating all major industries, reducing government spending while boosting private sector investment, and improving fiscal sustainability. If these policies are implemented and executed well, they could lead to sustainable improvements in areas such as US productivity, incomes, and wealth, and lower inflation in the medium term.

We see these as positive catalysts in the next few years. The risks to economic growth conditions remain in the coming quarters. In the current market environment, we believe a balanced, well-diversified portfolio with selective downside risk hedges and active management is the best way to navigate high uncertainties in the short term.

This approach also sets the foundation to benefit from pro-growth US policies as they unfold in future years at cheaper equity valuations. For a deeper dive into the recent price action and our insights, check out our latest global markets overview.

[MUSIC PLAYING]

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Global Head of Asset Research at WTW

David is the Global Head of Asset Research at WTW, responsible for economic and capital market research. He also is a member of the Investment Assumptions Committee, who help guide investment policy globally.


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