US President Donald Trump plans to announce sweeping reciprocal trade tariffs on April 2 (April 3, Singapore time). He preceded the upcoming tariff announcement with levies on Canada, Mexico and China — the US’s three largest trading partners — as well as automobiles, steel and aluminium.
Investors are very anxious, and markets are waiting with bated breath to see what Trump will say and do, says Vasu Menon, managing director, investment strategy at OCBC. The markets are also watching the tariff rates that will be applied, countries that will be impacted the most and whether Trump will make mention of sectoral tariffs on industries like semiconductors, pharmaceuticals, copper and lumber — and when this may take place.
Trump has called this “Liberation Day” but it is unlikely that investors will truly be liberated from tariff uncertainties, says Menon. “Given Trump’s modus operandi so far, tariff news have been coming out gradually in phases and with lots of twists and turns — we could see more of this in the coming weeks. Also, if countries retaliate, Trump could up the ante; this possibility will probably continue to keep investors nervous.”
Sentiment has been badly affected as seen from US indicators like consumer confidence and inflation expectation, although actual economic data has not been as bad, he adds.
However, the impact of the tariffs will probably become more evident in the coming months and the US economy may slow down and inflation may be sticky or even rise, says Menon.
That said, these may not be enough to cause a bear market or a prolonged one, “even if stock markets fall past the 20% mark”, he adds, given if the impact on US growth and inflation is “not severe and catastrophic”.
“We do not see a US recession at this juncture. We see the economy slowing down from 2.8% in 2024 to 2.2% this year, but a downturn is not our base case scenario,” says Menon.
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Instead, investors should pay more attention to tax cuts in the second half of the year, he adds.
“Some comfort can be found from the fact that the White House is fully aware that an aggressive tariff agenda that hurts US growth badly, could also hurt the Republican Party’s chances in the midterm elections,” writes Menon.
Comfort can also be found in the US$7 trillion mountain of US money market funds sitting idle on the sidelines, which could offer market support, he adds.
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“Global equities as measured by the MSCI World Index is down by nearly 7% from its peak while the S&P 500 index is down just under 9%. Corrections of this order are normal even in bull markets, so investors should not overreact,” says Menon.
He adds: “The best strategy at this juncture is not to panic, but instead to focus on the medium term and manage risk by keeping a diversified portfolio and time-diversifying fresh investments via dollar cost averaging.”
