Written by:
Alex Chappell
Investment Manager at Amber River DB Wood
The start of April feels like a long time ago. We started the month with so called ‘Liberation Day’, where President Trump quite comically announced sweeping tariffs by holding up a big board. That kickstarted financial market dislocations, which were then reinforced as US-China tensions escalated. Subsequent days saw equity markets fall by 10-15%, and credit and lending markets dry up. After seeing a partial recovery since then, it is easy to now underplay the severity of the market moves, though at one stage we were half a trading day away from a significant liquidity event… Trump’s Truss moment as we noted in our blog a few weeks ago.
The story goes that after Peter Navarro, (Trump’s senior advisor on trade) left the office for meetings, Treasury Secretary Scott Bessent took the opportunity to run into Trump’s office and plead for him to roll back tariffs. An hour later he tweeted a 90 day pause. In the days and weeks that followed, things started to calm down. We will never know if that recollection of events is true, though given the calamitous nature of the announcements and then the u- turns, it seems very plausible.
So, looking back, the month of April looks a little like a ‘V’ for markets, falling sharply in the early weeks, before recovering most of that ground by month end. European markets in particular have bounced back well, as a 10% ongoing tariff is not as bad as was once feared. Bond markets, fearing an increased risk of economic slowdown, are pricing in an extra interest cut in 2025. Such a slowdown in growth should provide Central Banks more elbow room to reduce rates more progressively.
From a portfolio perspective, this period has been one of our most active periods in the last decade. We reduced equity risk by 15-20% across the portfolio range through the first quarter, and more latterly took some profit on some of our bond positions to build our cash levels. This meant we were well positioned going into April, and we were therefore pleased with how we emerged at the month end. The chart below shows the picture in April, with four of our seven portfolios ending the month higher than they started. In particular, our Very Low and Low Risk Portfolios outperformed even our Money Market Portfolio, despite Low Risk being 3% negative at one point, it ended the month firmly positive at 0.39% up. As a reference anchor, the global stock market index (MSCI World), ended April 2.51% in the negative. Our portfolios with more equity risk also outperformed the global index on a relative basis.
So where do we go from here? “It depends” is usually met with comments like “get off the fence” or “that’s a politicians answer”, but in this situation it really does. As we sit today, we are three weeks on from the 90 day tariff pause, with no US trade deals announced (other than a rough outline for the UK). That isn’t surprising, as deals take time, but for each day where clarity is lacking, another day goes by where businesses and consumers struggle to make decisions. It takes 30-45 days for ships to travel from China to the US, so we are now entering the stage where Chinese goods arriving will be subject to a 145% tariff on arrival, with huge downstream impacts on supply chains and consumer prices from there. In short, we haven’t yet seen the effects, as it takes time to filter through, though the longer the uncertainty remains the more chance things get difficult.
Our base case is that a number of low impact tariff deals get announced over the next few weeks, setting the stage for further negotiations. Indeed, there was a notification from the Chinese government this morning that they will meet with the US over the coming 4-5 days to start negotiations. As we know too well from Brexit though, deals tend to get done at the last minute, when the pressure is at its greatest, so we wouldn’t be surprised if things drag on a little while longer.
In the meantime, we expect to see US data continue to slow, though the speed and severity will also have an impact on our outlook. Resilience will be welcome, as that suggests the US economy can weather the short term storm, though it is also possible to see some quick deterioration in certain sectors.
For now, then we are cautious, albeit we remain alive to things changing quickly. If a wide-reaching US-China trade deal is announced, we would be putting our cash to work in areas that would benefit. In the meantime, we continue to be comforted by the regular income the portfolios are generating, as well as the high level of diversification that we have which is evident in the journey year to date. Let’s see what May brings… one thing’s for sure, it would be hard pushed to be a crazier ride than April.