Mr. Market pushes back!

The month of March witnessed continued caution by investors ahead of the much-awaited White House announcements on reciprocal tariffs on April 2nd, 2025. The confrontational posturing of the Trump administration towards United States’ trading partners had investors braced for some form of an adverse outcome. Taking cues from the announced objectives of the White House on trade imbalances, investors tried to gauge and discount the extent and magnitude of the tariffs and re-priced risk assets. The S&P 500 Index was down by ~-5.75% and the S&P TSX was down by ~-1.87% during March.

The expectation among market participants was that the Trump administration team is working in the background to analyze the tariff and non-tariff barriers of its trading partners (an arduous task), which gave an appearance that the reciprocal tariff policy would be based on sound economic reasoning. Market participants also held on to hopes that lifting the uncertainty could support the markets after the sell-off. To their surprise, the scope and extent of tariffs announced were much larger-than-expected and were based on a simple mathematical formula with questionable logic. 

In response to the reality of what these tariffs would imply for corporate profit margins, inflation, and global economic activity, the global markets sell-off accelerated immediately after the announcements. In our previous update, we alluded that for the probability of the market outlook to improve from here, either the Trump administration must capitulate as the adverse market reaction builds pressure and/or the opposition finds its footing and stages a push bask. As of this writing, markets are rallying as the United States President has announced a pause on the tariffs for 90 days on countries willing to negotiate. He also announced a hike of tariffs to 125% on China as it refused to negotiate.

We think the adverse market reaction immediately after the announcement of tariffs, or in other words, a severe push back from Mr. Market on the reciprocal tariff policy had the administration thinking about the policy even though they maintained their tough posturing. The recent turbulence in the bond markets after the 10-year yield jumped by ~+60 basis points within a few days (see figure 1) causing industry participants to speculate if any event of substantial stress in the fixed income markets is near. Further, increasing news flow of countries gravitating towards China had made it clear that the actions of the Trump administration could ‘Make China Strong Again’ rather than America.

Figure 1: US 10-yr yield jumped up sharply after reciprocal tariffs announcement

Source: Bloomberg

We think the above factors contributed to an announcement of a pause on Trump’s tariff policy. However, since the tariffs are paused for 90-days and have not been rolled back; and a minimum of 10% tariff is still applicable, we think the case for inflation to increase in the future remains in place. Furthermore, tensions with China will stay elevated. The first-quarter earnings season could shed light on the impact of the uncertain environment on the earnings outlook and could again weigh on the sentiment. We think the case to keep a defensive tilt in portfolios is intact for now.

Vipul Arora is a Portfolio Manager with Assante Capital Management Ltd. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Please contact him at 613-258-1997 or visit ofarrellwealth.com to discuss your particular circumstances prior to acting on the information above. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. Insurance products and services are provided through Assante Estate and Insurance Services Inc.