Today, U.S. equity markets have tumbled in response to the recent tariff announcements by the Trump Administration. Yesterday, April 2, 2025, President Trump announced broad reciprocal tariffs in an event dubbed “Liberation Day” by the White House. While markets and investors were anticipating an increase in tariffs, the magnitude and broad-sweeping nature of the new tariff policy far exceeded expectations, resulting in a severe sell-off across all major US equity indexes in response.
Tariff Policy Overview
The new policy imposes a baseline 10% tariff on all countries beginning on April 5th, affecting imports from over 180 trading partners.[1] Additionally, “reciprocal” tariffs will be implemented and apply to any trading partners that impose tariffs on U.S. exports, equating to approximately 50% of the amount imposed on the U.S., which will go into effect on April 9th.[2] This additional reciprocal tariff results in a higher levy on several key trading partners, such as China (34% tariff), the European Union (20% tariff), and Japan (24% tariff). Further, a 25% tariff on foreign-made automobiles took effect immediately at Midnight EST on April 2nd. Trump presented the following list of some of the more impactful reciprocal tariffs during his announcement
Source: U.S. President Donald Trump via Truth Social
Another unexpected surprise in the “reciprocal” tariff announcement was regarding how these tariffs are to be calculated going forward. Rather than simply applying a matching rate to a particular country’s tariff rate on U.S. exports, the formula will factor in additional variables such as trade barriers and currency manipulation, potentially resulting in even higher tariff rates than would appear on the surface. The Office of the United States Trade Representative released the following reciprocal tariff calculation, which adjusts for the elasticity of imports, the “passthrough impact” of tariffs on import prices, as well as the degree of trade deficit with a given country[3]:
President Trump reiterated the $1.2 trillion trade deficit in 2024 and “unfair trade practices” as being the key drivers of the new policies, with the goal of these tariffs being to address the current trade imbalance, re—shore American manufacturing, and strengthen national and economic security.
Market Reaction
Markets reacted swiftly to Trumps announcement, with S&P 500 futures down -3% and NASDAQ-100 futures down more than -4% in after-hours trading, as investors priced in heightened concerns over trade tensions, likely retaliatory actions from trading partners, and potential inflationary pressures. Defensive assets such as gold and treasury bonds rallied as investors have began fleeing to safety, while stocks saw sharp declines in extended after-hours trading. Today, the sell-off continued, with the S&P 500 down -4.84%, and the NASDAQ Composite down -5.97%.
Smarter Way Takeaways
Given the strong bull market we’ve experienced since late 2022 and the elevated valuations we’ve seen in US stocks, it is not surprising to see a pull-back and a repricing of risk in the market. The key question becomes how prolonged and disruptive the tariffs will be on the economy and markets. If trade partners respond with swift retaliatory countermeasures, the risk of an escalating trade war could keep volatility elevated. Higher input costs and supply chain disruptions may weigh heavy on corporate earnings in the coming months, particularly in sectors reliant on imports. On the other hand, if negotiations de-escalate tensions or exemptions are carved out, markets may stabilize and see a speedy recovery. Market fluctuations are to be expected, and volatility immediately after a major policy change is normal. Our portfolios are structured to navigate these turbulent times by following a disciplined risk management approach and data-driven investment philosophy. We will continue to monitor markets closely and will adjust portfolios as needed according to their mandates.
Portfolio Positioning & Risk Management
Our set of proprietary market trend signals, Alpha & Omega, have been indicating a bearish market outlook since March 17th, and thus our Dynamic and Tactical portfolios have been in a defensive “risk-off” positioning with reduced equity exposure prior to this sell-off. Our Strategic equity portfolios have remained broadly diversified across all market caps and industry segments and are constructed based on a long-term investment horizon well beyond these short-term volatile movements, and we encourage our strategic investors to stay focused on their long-term objectives.
[3] https://ustr.gov/issue-areas/reciprocal-tariff-calculations