Tariffs 2025 – implications for active equity investors 

2 April 2025 (dubbed “Liberation Day” in the US) ushered in a precipitous decline in equity markets, which saw the S&P 500 fall by more than 10% in two days and drop by more than 20% from its mid-February peak. The subsequent 9 April 2025 announcement by the US Administration outlining a 90-day pause on ‘reciprocal’ tariffs (with the exception of China) saw an unprecedented reversal, with the S&P 500 closing the day c. 9.5% higher.

Taking history as a guide, we know there have been approximately 10 instances since the Great Depression where the S&P 500 has declined by more than 20% from peak to trough. The most recent examples being the market decline in 2022 (c. -22%), the Covid-19 crash of 2020 (c. -34%) and the 2008 Global Financial Crisis (c. -57%).

DeepSeek’s ‘Sputnik moment’6 in January 2025 appeared to mark the unwinding of the extended period of US mega-cap growth/tech leadership that had pervaded markets since 2018, accelerated at the beginning of 2023 and created a challenging environment for active management (particularly for global equity managers).While the tariff announcements exacerbated the decline in US mega-cap tech, the impact has been felt across markets since 2 April 2025.

The consensus across our investment managers is that the introduction of tariffs on so-called “Liberation Day” has introduced significant uncertainty — and markets tend not to like uncertainty. Managers also note that the fall in equity markets has been relatively broad-based.

For most of our managers, it is too early to understand where we land on tariffs and the impact to global growth, corporate earnings, equity valuation multiples and whether we are ultimately pushed into a global recession. 

There are two key themes that have dominated equity markets in the early part of 2025. The initial unwinding of the long US mega-cap growth/tech trade in Q1 2025, and the introduction of widespread tariffs by the US Administration on “Liberation Day” 2 April 2025. Both have driven stock markets lower, which has caused understandable consternation for investors.

While discerning the likely direction of markets in the near term is all but impossible, history suggests that any large drawdown in equity markets is typically followed by a recovery. Periods of market dislocation may also present opportunities for disciplined investors to add value, particularly in an environment where leadership is more broad-based and less concentrated in specific areas.

Ultimately though, we believe successful navigation of the ups and downs of equity markets, including this difficult period, requires a robust framework for constructing equity portfolios, which is aligned with specific investor objectives and constraints. In highly volatile markets, we are of the view that it is especially important to exercise discipline in sticking to these pre-agreed frameworks.