Market update

Tariffed. Global markets went into risk-off mode following President Donald Trump’s Wednesday evening tariff announcements, with losses outsized in the U.S.

The S&P 500 sold off -4.8%, erasing $2.4 trillion of market cap and marking the worst one-day performance since 2022. Sectors with stretched valuations sold off the most, with the tech sector lower by -6.7%, the Magnificent 7 off by -6.7% and the tech-heavy Nasdaq 100 down -5.4%.

International equities didn’t fare much better. In Europe, stocks fell -3.6%, while Chinese (Hang Seng -1.5%) and Japanese (TOPIX -3.1%) equities also declined.

On top of all the equity moves, investors had to digest a decline in U.S. services activity, which points to declining business sentiment even before the tariff announcement.

Investors bought fixed income to hedge growth slowdown risks, and yields across the Treasury curve rallied. The 2-year (3.68%) and 10-year (4.03%) were lower by 18 basis points and 10 basis points, respectively. Futures markets increased their expectations of interest rate cuts this year by a full 25 basis points.

The dollar weakened on growth concerns. The greenback declined -1.8% versus the euro, -1% relative to the Canadian dollar and -1.3% against the Mexican peso.

In commodities, oil ( -6.4%) sold off below $70 per barrel as OPEC+ unexpectedly tripled its planned May oil supply increase. The move, likely influenced by U.S. pressure to lower prices and offset Iranian sanctions, marks a shift in OPEC+’s strategy. Gold ( -0.6%) declined from its all-time high levels amid broad market selling.

This morning, China announced that it will impose a retaliatory 34% tariff on all U.S. imports starting April 10. As of 6:30 am EDT, U.S. equities are extending their losses with S&P 500 futures down -2.3%.

Below, we recap the tariff announcements this week and give our take on what to do next.

Spotlight

Rumble in the Rose Garden

What was announced? President Trump is imposing a minimum 10% tariff on all exporters to the U.S. and additional reciprocal duties on approximately 60 nations with the largest trade imbalances with the U.S. The tariffs will be implemented from April 5 to 9.

What are reciprocal tariffs? Reciprocal tariffs are trade duties imposed by a country in response to tariffs levied by another country, aiming to equalize the trade conditions between them. In the context of President Trump’s administration, reciprocal tariffs were part of a strategy to address perceived trade imbalances and protect domestic industries by imposing similar tariffs on imports from countries that had imposed tariffs on U.S. exports. This approach is intended to encourage negotiations and potentially lead to more favorable trade terms for the imposing country, though it can also lead to trade tensions and economic disruptions due to retaliation or changes in consumption (discussed further below).

As our Chairman of Asset and Wealth Management Investment Strategy, Michael Cembalest, noted in his latest piece, Redacted, the tariff rates announced appear to be calculated as the greater of 10% or the country’s trade surplus (exports to the U.S. minus imports from the U.S.) divided by its exports to the U.S. The table below indicates how that calculation shakes out for the six largest trade deficit countries targeted by reciprocal tariffs.

What wasn’t included in the announcement?

• Notably, the United States’ two largest trading partners, Canada and Mexico, were left off the list and their existing 25% tariffs (with important carve-outs) will remain in place.
• According to the executive order, some goods will be carved out (though they could face levies outside the scope of reciprocal tariffs), including:
  • Steel/aluminum
  • Copper
  • Pharmaceuticals
  • Semiconductors
  • Lumber articles
  • Bullion
  • Energy materials that are not available in the U.S.

What’s the effect? This raises the average effective tariff rate in the United States to around 25% from around 5%. The new levies push the effective tariff rate to the highest level in over 100 years.

This is higher than market participants were expecting. According to a Goldman Sachs survey, only 65% of investors actually expected reciprocal tariffs to be levied and if they were levied, only 10% to 15% of them thought they would raise the tariff rate by 15 percentage points or more. A big question is whether these are negotiating positions and if the rates will decline after negotiations, or if the new rates are durable.

What does it mean? We estimate yesterday’s announcement could impact U.S. GDP by 1.5% to 2%, potentially reaching 2.5% when considering all tariffs this year. This could alter the economic outlook and increase recession risks beyond the 25% previously estimated. Uncertainties remain regarding legal challenges, negotiations and subsector exclusions, ensuring continued trade policy uncertainty.

What do we think? The announced tariffs land at the higher end of our expectations prior to the press conference. All else being equal, we anticipate the effect of the tariffs to present a meaningful headwind to U.S. growth and increase inflation.

What to do? This makes us marginally less positive on U.S. risk assets and marginally more positive on diversification, namely through structures, fixed income and gold. Ensure portfolios are diversified and resilient to withstand market cycles and align with your long-term goals. Our order of operations for investors considering their next move would be as follows:

1. Structured Notes: Leverage market volatility with structured notes that are designed to offer downside protection and potential for enhanced yield. These instruments can provide strategic opportunities to capture upside while offering buffers against market drawdowns.

2. Gold: Consider gold as a potential diversifier, as it may offer resilience amid volatility and geopolitical tensions. With recent market retreats, it might be worth evaluating whether to build a position, given its exemption from tariff measures and potential for price appreciation.

3. Bonds: Consider using bonds as a hedge against growth challenges by moving out of cash and into core bonds, which are designed to offer resilience against growth shocks. Diversified, laddered bond portfolios may help increase yield and duration without sacrificing quality, potentially providing a reliable foundation in uncertain times.

Above all, remember that market volatility is a normal feature of markets.  We’ve had growth shocks before and through it all, sticking to your strategic asset allocation with equities for capital appreciation, fixed income for downside growth resilience and opportunistic themes at the tactical margins has proven itself over time.

As always, your J.P. Morgan advisor is here to help.

All market and economic data as of 04/04/25 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

DISCLOSURES

The information presented is not intended to be making value judgments on the preferred outcome of any government decision or political election.

Investors should understand the potential tax liabilities surrounding a municipal bond purchase. Certain municipal bonds are federally taxed if the holder is subject to alternative minimum tax. Capital gains, if any, are federally taxable. The investor should note that the income from tax-free municipal bond funds may be subject to state and local taxation and the Alternative Minimum Tax (AMT).

Index definitions:

The Solactive United States 2000 Index intends to track the performance of the largest 1001 to 3000 companies from the United States stock market. Constituents are selected based on company market capitalization and weighted by free float market capitalization.

The Russell 3000 Index is a capitalization-weighted stock market index that seeks to be a benchmark of the entire U.S. stock market. It measures the performance of the largest 3,000 U.S. companies representing approximately 96% of the investable U.S. equity market.

The S&P 500 Equal Weight Index is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight of the index total at each quarterly rebalance.

The Bloomberg U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).

The Magnificent Seven stocks are a group of influential companies in the U.S. stock market: Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla.

The Magnificent 7 Index is an equal-dollar weighted equity benchmark consisting of a fixed basket of 7 widely-traded companies (Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta, Tesla) classified in the United States and representing the Communications, Consumer Discretionary and Technology sectors as defined by Bloomberg Industry Classification System (BICS).

The S&P Midcap 400 Index is a capitalization-weighted index which measures the performance of the mid-range sector of the U.S. stock market.

The S&P 500 index is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.

Bonds are subject to interest rate risk, credit, call, liquidity and default risk of the issuer. Bond prices generally fall when interest rates rise.

Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The index was developed with a base level of 10 for the 1941–43 base period.

The Bloomberg Eco Surprise Index shows the degree to which economic analysts under- or over-estimate the trends in the business cycle. The surprise element is defined as the percentage difference between analyst forecasts and the published value of economic data releases.

The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance.

The NASDAQ 100 Index is a basket of the 100 largest, most actively traded U.S companies listed on the NASDAQ stock exchange. The index includes companies from various industries except for the financial industry, like commercial and investment banks. These non-financial sectors include retail, biotechnology, industrial, technology, health care, and others.

The Russell 2000 Index measures small company stock market performance. The index does not include fees or expenses.

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.

The views, opinions, estimates and strategies expressed herein constitutes the author's judgment based on current market conditions and are subject to change without notice, and may differ from those expressed by other areas of J.P. Morgan. This information in no way constitutes J.P. Morgan Research and should not be treated as such. You should carefully consider your needs and objectives before making any decisions. For additional guidance on how this information should be applied to your situation, you should consult your advisor.

All companies referenced are shown for illustrative purposes only, and are not intended as a recommendation or endorsement by J.P. Morgan in this context.

JPMorgan Chase & Co., its affiliates, and employees do not provide tax, legal or accounting advice. Information presented on these webpages is not intended to provide, and should not be relied on for tax, legal and accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.

RISK CONSIDERATIONS

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• Investors should understand the potential tax liabilities surrounding a municipal bond purchase. Certain municipal bonds are federally taxed if the holder is subject to alternative minimum tax. Capital gains, if any, are federally taxable. The investor should note that the income from tax-free municipal bond funds may be subject to state and local taxation and the alternative minimum tax (amt).
• International investments may not be suitable for all investors. International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the u.s. can raise or lower returns. Some overseas markets may not be as politically and economically stable as the united states and other nations. Investments in international markets can be more volatile.
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• As a reminder, hedge funds (or funds of hedge funds) often engage in leveraging and other speculative investment practices that may increase the risk of investment loss. These investments can be highly illiquid, and are not required to provide periodic pricing or valuation information to investors, and may involve complex tax structures and delays in distributing important tax information. These investments are not subject to the same regulatory requirements as mutual funds; and often charge high fees. Further, any number of conflicts of interest may exist in the context of the management and/or operation of any such fund. For complete information, please refer to the applicable offering memorandum.
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