Tariff Uncertainty: What’s Next for Investors?

Global markets and investor emotions have been on a roller coaster since President Trump announced sweeping tariff proposals on April 2 and a subsequent pause in implementing some of the duties on April 9.

For investors, this volatile environment highlights the importance of sticking with a well-diversified investment strategy. A diversified approach not only helps spread the risk but also opens your portfolio to the broader set of opportunities that may present themselves when this period of volatility passes.

As the situation continues to play out, this article aims to clarify important questions about tariffs and their impacts on the markets.

What are the immediate economic effects of the new tariff policy?

Trump's tariffs were higher than most expected, with a 10% baseline tariff on imported goods and higher rates on specific countries and regions. Europe, China and Southeast Asia were particularly hard hit. The trade war has caused consumers and CEOs to hesitate, delaying spending and major decisions. Markets have been highly volatile, including a sudden rally when Trump announced a 90-day pause on tariffs above 10%, with the exception of China. Stocks fell sharply the next day.

How do past tariff policies compare to the current situation?

The Smoot-Hawley Tariff Act of 1930 significantly raised tariffs on 20,000 imported products, increasing rates by an average of 40% to 60%. Congress enacted the legislation following the stock market crash of 1929 with the intention of protecting U.S. businesses and farmers.

How could the new tariffs affect the Fed’s interest rate decisions?

We don’t believe the Federal Reserve (Fed) will change interest rates until more information becomes available. Given the data’s lack of clarity and the fresh uncertainty arising from the 90-day tariff pause, we believe the Fed will push back on near-term rate cuts. Rising inflation expectations may force the Fed to wait until cracks emerge in the otherwise sturdy labor market to start cutting rates aggressively.

How are the tariffs affecting the labor market?

So far, the labor market continues to show resilience amid rising financial market uncertainties. It will be some time until labor market data help us assess the impact of new tariff policies on employment. The Department of Labor reported that unemployment ticked slightly higher to 4.2% in March.

What are the potential long-term economic effects of the new tariffs?

It’s reasonable to assume new tariffs are likely here to stay in some form. Until they are better known and analyzed, it’s premature to assume any long-term impacts on the economy. In general, fair and balanced global trading policies are supportive to long-term economic growth.

How does the new tariff policy affect U.S. stocks?

The situation is constantly changing. The management teams of the companies we consider for our portfolios have to sort out whether the tariffs are temporary or permanent and how those import taxes will affect their business. This policy uncertainty, along with worries about the direction of the economy, complicates decisions about capital spending and other long-term planning.

Our growth-oriented investment teams are always seeking to enhance our portfolios, and these systematic headwinds could create opportunities. For example, companies with pricing power and a focus on supply chain management are likely better positioned for this environment. If we can identify companies that we think have been adversely affected by broad market weakness but now offer compelling valuations, we will move to capitalize on those opportunities.

Meanwhile, our value teams believe periods of market upheaval can be favorable for less flashy value, low volatility and dividend-paying stocks. According to FactSet, value stocks have beaten their growth counterparts by 10% this year through April 7. That’s a reversal from when growth stocks outperformed value in 2023 and 2024.

Even before the recent volatility, investors were already starting to rotate out of growth and momentum stocks due to increasing concerns about whether the massive investment in artificial intelligence (AI) can be sustained. Now, tariffs have injected a newer and higher degree of market volatility. In the first quarter, defensive sectors like health care, utilities and consumer staples have outperformed cyclical sectors such as consumer discretionary and technology.

Value stocks were attractively priced coming into this turbulent market environment with valuation spreads between value and growth at historical extremes. While valuation isn’t the only reason to buy a stock, it can be a helpful starting point ahead of and during periods of market volatility.

What impacts do the tariffs have on European stocks?

European stocks have fared better than U.S. stocks in 2025. A combination of recently announced European fiscal stimulus for increased defense and infrastructure spending and investors diversifying away from the increasingly volatile U.S. market accounts for European outperformance. The European Central Bank also cut rates faster than the Fed.

While tariff-related volatility dented European indexes, Europe continues to outperform the U.S. Even so, European economies tend to grow slowly due to regulations, taxes and other factors, so our Global and Non-U.S. Growth team remains selective among European stocks.

How are bonds responding to the new tariff policy?

Amid expectations for slowing growth, the 10-year Treasury yield initially declined, dropping below 4% for the first time since October. But volatility and uncertainty quickly emerged, and the 10-year yield surged back above 4% again. Trump’s pause on tariffs came moments after a stronger-than-expected 10-year Treasury auction on April 9, but yields barely moved in reaction to the news.

The market appears to be working through its concerns about what tariffs could do to the economy (slow it down) and inflation (drive it higher). Additionally, liquidity concerns and worries about the potential forced selling from hedge funds and other investors, including foreign investors, are fueling Treasury market volatility.

Should I make changes to my portfolio?

You may already have a well-diversified, long-term financial plan that aligns with your goals, risk tolerance and time horizon. The latest headlines and market movements shouldn’t change these plans.

We believe the prudent approach is sticking to your long-term financial targets regardless of near-term volatility. This may also be a time to consider rebalancing your portfolio to your desired allocations. Rebalancing requires systematically selling high and buying low over time.

If you’ve used this strategy recently, your portfolio likely now has less exposure to U.S. mega-cap stocks and more exposure to non-U.S., small-cap and value-oriented stocks. However, if you haven’t rebalanced recently, it may be wise to ensure that your portfolio's allocations to bonds and other overlooked asset classes align with your long-term investment strategy.