The Trump tariffs are shaking the markets

The downward trend on global equity markets has accelerated since Liberation Day on April 2 with the announcement of higher than expected tariffs for many countries. Given the uncertainty over the timing and number of retaliatory tariffs from US trading partners, combined with further measures in return, a more cautious stance is warranted. Since the last high on February 19, the MSCI World Index has lost more than 20% in euro terms and has thus entered a bear market. In addition to the tariffs, other reasons are also playing a role: on the one hand, the probability of a contraction in the US economy in Q1 2025 (expectations were recently at 1.6% growth - source: Bloomberg, April 3, 2025) is increasing, and on the other hand, analysts have revised their earnings expectations for the MSCI World for 2025 from a plus of 10% to 0% growth (source: Ned Davies Research, April 3, 2025).

Mitigate distortions

We therefore believe it is prudent to adopt an even more resolute stance than two weeks ago. At that time, we added euro and US government bonds to our portfolio. We have also moved out of the US equity market, which is heavily focused on the big tech companies, and into the more reasonably valued European equity market with its focus on industrials and commodities. We have hedged the majority of our assets traded in US dollars since March 19, which is now benefiting us. Portfolios are now being positioned to mitigate the impact of further equity market declines by increasing bond exposure relative to equities. In addition, the proportion of defensive equities is being increased. The bond portfolio has a very high exposure to safe EUR and USD government bonds (hedged against the euro). In the event of further turmoil, we would benefit from the flight to these “safe” assets.

Bear market ahead

In an average bear market, we would expect a decline of 36% from the February high, with the price/earnings ratio falling from 21.5 to around 15. Historically, bear markets last about a year and earnings do not grow. Given the change in our economic outlook, we have revised our expectations for the ECB and Fed rate cut cycle. The probability of the cycle ending in 2025 is now lower than it was two weeks ago.

We expect the current high volatility to remain with us in the coming weeks. We are well positioned to react to the associated changes. The key is to keep a cool head and keep an eye on our chosen long-term investment strategy. We will keep you up to date on our positioning in the various asset classes, particularly equities, bonds and currencies in these dynamic markets. We will be happy to answer any questions you may have and to discuss them personally.

This information represents a market overview and the investment strategy of Kathrein based on our market opinion. It does not constitute a direct or indirect recommendation to buy or sell securities or an investment strategy.
Price fluctuations due to market changes are possible at any time for both currencies and securities. Information and presentation of past performance do not allow any reliable conclusions to be drawn about future results.