Tariff’s impacts on markets and portfolios
The scale of President Trump’s tariff announcements on April 2nd exceeded economist and market expectations, sending the S&P 500 down over 10% in the two days immediately following.1 And while markets rallied following the April 9th announcement of a 90-day pause of reciprocal tariffs (excluding China), significant uncertainty remains.
How tariffs could affect investments
We expect tariffs to lower growth and boost inflation globally. Our Fundamental Fixed Income team, for example, has lowered its 2025 GDP growth expectation to 0% and raised its core inflation expectation to 3.8%.2
Michael Gates, lead portfolio manager of the BlackRock Target Allocation Model Portfolios, estimated that a 20% effective tariff increase could have a 2-to-2.5% downward impact on growth: higher goods prices reduce activity, the negative “wealth effect” could drive lower consumer spending, and reduced corporate confidence and delayed decision making could all drag on growth. Depending on the starting economic growth rate and ultimate tariff rate, the hit to growth could be enough to cause a shallow recession.
We are paying close attention to two key questions as we try to make sense of how uncertainty could play out in portfolio allocation decisions:
- Tariff rates & longevity: Where will tariff rates ultimately wind up, and how long will they stay in place? This will be shaped by negotiations and the potential for retaliation at the individual country level.
- Response from companies: Who will bear the cost of tariffs: companies or individuals? The answer will differ by product and may be a mix of both. But, for reference, any costs absorbed by companies will show up as lower profit margins or slower earnings growth, and costs passed to the consumer will show up as higher prices or inflationary pressures.
What could tariffs mean for your portfolio?
In what’s likely to remain an uncertain environment, it can be important to consider strategies that help diversify portfolio risk and position against downside market participation. The differences in how markets react to tariff policy may also create opportunities for active managers that are able to stay nimble and take advantage of dislocations.
Here are three key takeaways from recent market activity for advisors to keep in mind:
1. Diversify portfolio risk
Diversification has been working. Bonds and liquid alternatives have offset the sharp pullback we saw in U.S. equities.
Diversification has been working
Performance from 2/19/25-4/8/25
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