“There is nothing more powerful than a market that has changed its mind.” – Art Cashin
Note: This letter reflects market conditions and information available as of Friday, April 4, 2025. Given the pace of recent developments, events may have evolved since the time of writing.
Markets Meet a New Trade Order
Financial markets have been rattled by a decisive shift in U.S. trade policy. This radical policy shift, introduced on April 2nd and dubbed “Liberation Day,” marked the most comprehensive change to U.S. trade policy in decades.
Markets thrive on predictability, stability, and clear rules of engagement. President Trump’s unilateral imposition of substantial tariffs on imports into the United States has upended expectations and introduced widespread uncertainty (see Bloomberg’s Trade Policy Uncertainty Index below). Trump’s tariffs, which start at a baseline of 10% on all imported goods, escalate sharply for major trading partners, with rates of 20% on imports from the European Union, 24% from Japan, 27% from India, 34% from China, and 46% from Vietnam. If you include existing tariffs, the cumulative rate on Chinese goods now stands at 54%.
The immediate market reaction was negative, reflecting investor anxiety regarding heightened costs, damaged supply chains, and the potential for retaliatory tariffs. The S&P 500, having declined 4.3% through March 31st, fell an additional 10.5% in the two trading days following the president’s announcement. Meanwhile, the NASDAQ, having lost 8.3% of its value in Q1, dropped an additional 11.2%. Notably, some of the market’s former darlings, including Nvidia and Tesla, have seen declines of over 30%. The U.S. dollar weakened, and credit spreads widened. Meanwhile, bonds and alternatives—areas we’ve long advocated—have provided meaningful counterbalance.
Understanding Tariffs and Their Impact
At their core, tariffs are taxes on imported goods. By raising prices, tariffs are intended to make imported goods less attractive, thereby encouraging domestic consumers to purchase locally produced alternatives. The rationale for using tariffs can vary—from protecting domestic industries to rebalancing trade or strengthening national security.
While the goals of reshoring supply chains and promoting domestic production resonate with many, tariffs are not without trade-offs. Higher import costs can create inflationary pressure, reduce corporate profitability, and disrupt existing trade relationships. Take, for instance, the iPhone, a device made with globally sourced components. Apple’s cost of producing an iPhone 16 Pro is approximately $550. With the newly announced tariffs, this cost approaches $850. The difference results in diminished profitability for Apple, increased prices for consumers, or both.
The market’s concerns don’t end there. Foreign trading partners often respond with reciprocal tariffs, harming exporters and potentially initiating a downward spiral of global trade contraction. History has repeatedly demonstrated that global trade wars lead to reduced global growth, efficiency losses, and widespread economic disruption. The broader economic effects will depend on how long the tariffs remain in place, the degree of international retaliation, and how companies and consumers adjust.
Market Repricing and Investment Implications
President Trump has repeatedly articulated his belief that tariffs represent effective policy instruments to reduce trade deficits, restore manufacturing jobs, and foster American economic independence. The administration’s rationale, clearly outlined in the tariff announcements, focuses primarily on the goods trade deficit, viewing trade imbalances as evidence of economic weakness and unfair foreign practices.
Market reactions suggest investors are skeptical of these assumptions. Economic consensus argues that trade deficits are principally driven by underlying domestic economic conditions, such as savings rates and investment needs, rather than solely trade policy. Investors appear unconvinced that the benefits articulated by the administration will offset the immediate, tangible economic costs these tariffs impose.
The sell-off in equity markets has been concentrated among highly valued U.S. technology companies, several of which rely heavily on international production or global demand. Conversely, international markets have attracted renewed interest. European and Asian equities delivered positive returns during the quarter, driven by a combination of favorable currency movements, regional demand, and, in some cases, optimism about structural reforms or local industrial policy. European equities, for instance, were up 10.5% for the quarter, as European defense companies benefited from expectations of increased defense spending, driven by Europe’s perceived need to bolster its own security capabilities amid changing U.S. policies on international alliances and defense cooperation. As we’ve written in prior letters, international equities trade at substantially lower valuations compared to their U.S. counterparts, making them attractive to investors seeking value opportunities during a period when American markets face significant uncertainty.
Our Positioning: Prepared, Not Predictive
As we wrote last quarter, prudent investing is about discipline, diversification, and preparation—not prediction. Recognizing elevated risks at the start of this year, we took preemptive measures by modestly dialing back equity exposure for most clients—not as a reaction to any single forecast, but as a measured response to growing uncertainty. This tactical adjustment has provided clients with additional resilience as market volatility intensified.
Moreover, diversification—long a central pillar of our investment philosophy—has served as a particularly valuable defense in this environment. Our allocations to bonds, alternatives, and international equities have proven especially beneficial. Bonds have performed admirably, buoyed by declining yields and a flight to quality. Our alternative investments have continued to deliver returns that exhibit low correlation to traditional equities, providing a critical source of stability. Notably, international markets have significantly outperformed U.S. equities year-to-date, reflecting both their relative valuation attractiveness and currency tailwinds due to a weaker dollar. These allocations reflect our longstanding emphasis on diversification—across geographies, asset classes, and economic scenarios. In a quarter when U.S. equities stumbled, these other exposures contributed meaningfully to portfolio resilience.
The Road Ahead: Staying Disciplined
It remains unclear how long these tariffs will be in effect, or whether they will be adjusted through negotiations or legislative action. What is clear is that uncertainty—both geopolitical and economic—will continue to influence markets.
In such an environment, emotional decision-making is often the greatest risk to investors. Chasing short-term trends or reacting to political developments rarely leads to success. Just as previous uncertainties eventually resolved, markets have consistently rewarded disciplined investors who stay the course and adhere to a thoughtful strategy. In a world full of noise, the clearest signal remains discipline.
As we move forward, we will continue to monitor developments closely and adjust our views as needed. But our core philosophy remains unchanged: to guide our clients through complex markets with clarity, prudence, and a deep commitment to their long-term financial well-being.
Thank you for your continued trust.
Razmig Der-Tavitian, CFA, CAIA
Chief Investment Officer & Managing Partner
SLK Private Wealth
Please let your financial advisor know if there have been any changes to your financial situation.
