From the optimism and the near euphoria that accompanied the return of President Donald Trump to the White House, to the near despair currently facing global equity investors, markets have never ceased to prove the one constant thing; volatility will always be a part of equities investing.
From rationalising markets from the lens stronger growth based on expected tax cuts, DOGE driven efficiency and deregulation, markets now must grapple with uncertainty of tariff pronouncements that seem to get more bizarre every passing day, how far they could go and their impact on growth.
In his first term, Trump imposed a number of tariffs ranging from 10 percent to 60 percent across a wide range of products from different countries.
The impact of those trade wars, among other factors, saw global equities turn negative in 2018, with the S&P 500 closing the year 6.24 percent lower. Nonetheless, global markets made a strong recovery in the subsequent years, rising by a cumulative 72.03 percent over the next three years.
Ditto 2025. Trump has escalated the trade war, announcing a wide array of tariffs affecting European Union, China, Canada and Mexico.
The reaction from the markets has been immediate. The S&P 500 has fallen from its recent high by nine percent typically referred to as a market correction as at mid-March.
Market chatter has shifted from that of optimism to fears about a US recession, potential impact on earnings growth, and a slowdown in corporate earnings. Market volatility as measured by the VIX increased markedly with the index rising by 55 percent since the turn of the year.
The question at the heart of many investment decisions at the moment is; what the impact of the tariffs will be and severity.
It depends on how long the trade war lasts, how much more goods are roped into the tariffs fold and how affected countries choose to react to the tariffs. Mexico, Canada and China make up about 40 percent of US imports.
By various estimates, a prolonged trade war could detract from US growth by between 0.5 percent- 0.75 percent, and add close to 50bps to inflation.
The latter could complicate the Fed’s path to further monetary easing, even potentially forcing the Fed’s hand into a rate hike, should rising inflation expectations take root.
Amid all these developments, the one thing that is clear is that mixed economic news flow will continue to drive global equity markets volatility in the near term.
Market volatility is often a reminder of the need for an investment approach focused on maintaining a diversified portfolio, discipline and long-term outlook, rather than attempting to predict and time the market, both for which there is little evidence of sustainable outperformance.
After all, as the adage goes, time in the market beats timing the market.
The writer is a senior portfolio manager at Old Mutual Investment Group
