Trump’s tariff mayhem sends global equities off a cliff, and trampolining back up again
There is an old English expression that holds, ‘nothing is certain but death and taxes’. This works great for everyday life; but to make it relevant in the investing realm, one might say, “the only certainty is uncertainty’. Yes, dear reader, volatility is baked into financial markets and investing.
Global market meltdown
For proof, look no further than global stock market performances over the first two weeks of April 2025. On 3 April, the United States (US) NASDAQ Composite Index suffered one of its worst ever single-day corrections, plummeting 1050 points, or 6%. A few trading days later it recovered, climbing 12%, closing 1857 points higher on 9 April.
Local investors had to suffer through similar swings and roundabouts. The JSE All Share Index shed more than 3% on 3 April, and over 5% the following day as it digested the ‘trade tariff’ threats emanating from the world’s largest economy. In a strange twist, local investors came off worse than their US counterparts, losing 7.44% over the period 2-9 April versus the 2.71% contraction on the NASDAQ. The most plausible explanation for this divergence is that uncertainty surrounding a potential split in South Africa’s Government of National Unity (GNU) weighs more on local sentiment than the implications of being a small player in a global trade dispute.
You can leave the GNU nonsense to the politicians to sort out, but it will be up to you and your financial adviser to translate financial market volatility into investment decision making. Should you ‘lighten up’ on your equity exposure the moment global markets falter? It helps if you realise that volatility is not the main threat to your long-term portfolio returns; rather, your reaction to volatility is.
What is this ‘volatility’ you speak of?
Volatility refers to how much and how often prices move in financial markets. And here’s the trick: it is not volatility but your reaction to it that does the most long-term damage. Why? Because investors who obsess over short-term market noise often miss the broader picture. Those who thought about reducing their JSE exposure after the close on 3 April and did nothing ended up far better off than those who flooded their online brokers with sell orders on that day or the next.
Selling into market weakness, or buying back in after prices have recovered, are among the quickest ways to erode market returns and destabilise your long-term investment plans. But don’t take my word for it. Investment greats like Charlie Munger (1924–2023) and Warren Buffett have long warned against reacting emotionally to market corrections. “Using volatility as a measure of risk is nuts,” Munger once said. “To us, risk involves the chance of permanent loss of capital, or the risk of inadequate return.”
Redefining risk for Joe Average
You only lock in a permanent loss or profit when you sell out of a position. How, then, should the apparent madness of President Trump’s on-again off-again trade tariffs influence your stock market positioning? After all, your gut tells you that higher tariffs are bad for risk-on assets, especially equities. This is not entirely true; to understand why you need to know what tariffs are, and they move markets.
A tariff is a tax placed by a sovereign on imported goods. Tariffs are typically introduced to support local industries by making imported products more expensive. In the case of South Africa, you might charge a 100% import tariff on fully assembled automobile imports to protect the local car manufacturing industry. Tariffs may boost some domestic sectors, but they raise costs for domestic consumers and businesses across the board. They also disrupt supply chains and strain international trade relationships. So, this tariff might boost a JSE-listed auto manufacturer while punishing an SA-focused motor exporter listed on the Japanese exchange.
Trump’s main argument for tariffs is that the US has been offering trade concessions for goods imported from many of its trading partners without adequate reciprocal arrangements for US exporters. Case in point: the US’ participation in trade frameworks like the African Growth and Opportunity Act (AGOA), which offers South African exporters preferential access to US markets without meaningful concessions for American producers. South Africa is under significant diplomatic pressure, and there are justified concerns that the end of AGOA could affect key domestic sectors while putting further pressure on the country’s current account.
It is tempting to panic in the face of such political noise. But as Glacier Invest pointed out in a recent note to clients, moments like these call for perspective. Trade policy will shift. Markets will react. But portfolios anchored in long-term planning can and do endure. As if to prove them right, the US has just announced a 90-day trade tariff ceasefire. If this position changes, and Trump pushes ahead with the current tariff-by-country list, the average US tariff rate will reach its highest point in over a century.
Financial markets caught unawares
The market is awash with news and views about the current tariff trajectory. According to Alex Tedder, Chief Investment Officer for Equities at Schroders, said that the initial market reaction demonstrates the extent to which the tariffs have been more severe than expected in both magnitude and scope. Notably, many of the sectors and regions affected were precisely those that had adapted their supply chains after the first round of Trump-era tariffs, beginning 2016. This time, the escape routes are fewer, and the implications wider.
Tedder noted that while the current market volatility was uncomfortable, it also unlocked opportunity. “The market moves year-to-date, which have intensified in the past couple of days, are driving significant dislocations in areas that remain structurally attractive on a multi-year view,” he wrote, in a presser released during the Trump 2.0 economy and markets maelstrom. So, while the NASDAQ is down 11% year-to-date to 9 April, technology counters like Alphabet, Meta, and Broadcom boast strong earnings and trade in the ‘sweet spot’ of long-term secular growth trends.
The investment specialist reminded his audience that yesterday’s winners were being repriced in an emotional and reactive market. Although your writer agrees, it is clear that some of the technology sector’s price corrections should have been anticipated. Most of the Magnificent Seven technology shares are in negative territory for 2025 having run into issues in the second half of 2024.
Tesla has been worst hit, sliding by almost a third in the wake of violent protests by US citizens against Elon Musk’s involvement in the recently-formed Department of Government Efficiency (DOGE). Apple, down 20.5%, Amazon (-13.1%), Nvidia (-12.0%) and Alphabet (-10.5%) are not far behind. Meta is the exception, unchanged year-to-date to 9 April.
How should investors position for uncertainty?
Schroders’ media release suggests choosing resilient companies that are positioned beyond short-term market gains. This means identifying and investing in companies that are building redundancy into supply chains, investing in customer retention, and planning for geopolitical instability. These firms may suffer short-term drawdowns, but their long-term prospects remain intact.
Tedder also hinted that some sectors would benefit more from the looming shift in global trade dynamics, as unclear as this shift may be. Businesses with a greater domestic focus, pricing power, or defensive qualities will have an edge, in much the same way as they are better able to ride out recession. So, you might consider companies in healthcare, local financial services, and utilities for their potential to generate stable returns in a tariff-constrained world.
Investors are best-served leaving the identification of these sectors, and stock selections within them, to the active portfolio managers in charge of their mutual funds or unit trusts. And if you or your clients want to place large bets, you best choose your ‘horses’ with your MAGA hats on. Over the longer-term, your portfolio success hinges on refocus over retreat. Excess market volatility will expose and punish weak hands, and rewards investors who show long-term conviction.
Let your adviser be your pilot (apologies to Sting)
It is at moments like these that the guidance of a trusted adviser proves most valuable. Remember, your adviser is not there to predict financial market outcomes, but to help frame asset allocation decisions in light of your risk and return needs, and investment time horizon. The worst mistake you can make during big market corrections is to let emotion override your financial plan.
Selling into a drop, chasing equity markets after a rally, or abandoning your long-term asset allocations based on short-term headlines will do more harm than good, eroding the lifetime value of your portfolio. History has shown time and again that staying the course through turbulent periods is often what defines successful investors. As the adage goes, ‘time in the market beats timing the market’ every time.
Finding ships to navigate stormy waters
Uncertainty will remain, tariffs may come and go, politics will intrude on financial markets, and share prices will swing, but the only fact worth acting on is that your reaction to financial market volatility matters more than volatility itself. As long as your portfolio reflects your goals, your risk appetite, and your time horizon you will be ok. So, talk to your adviser, stick to your game plan, and remember that investing is not about avoiding storms but backing the ships that are built to sail through them.
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