Market Volatility & New Tariffs

This past week has seen heightened market volatility, driven in part by the announcement of sweeping new tariffs by President Donald J. Trump. These tariffs, including a baseline 10% duty on all imports starting April 5, along with higher country-specific rates for nations with significant trade surpluses with the U.S., have introduced fresh uncertainty into global markets. For instance, imports from China will be hit with an additional 34% tariff, while products from the European Union, Japan, and South Korea could face tariffs of 25% or higher.

It's worth noting that certain goods have been excluded from the new tariffs. Items such as pharmaceuticals, semiconductors, copper, critical minerals, lumber articles, and energy products will not be subject to the new duties, along with humanitarian-related goods like food and medicine. Additionally, steel, aluminum, and automobiles already covered under prior trade actions are excluded from this round. These carve-outs may help mitigate some of the broader economic impacts of the policy¹.

In the face of such challenges, we believe our diversified, strategically balanced, long-term approach continues to demonstrate its value. Our strategy is designed to withstand market fluctuations, minimize exposure to specific events like these tariff announcements, and maximize potential returns through investments across various asset classes.

While short-term volatility may arise as markets react to these developments, maintaining focus on your long-term financial goals remains essential. Rest assured that Savvy is actively monitoring these changes and has already begun implementing strategic adjustments where necessary to optimize portfolio performance. As always, our goal is to navigate these uncertain times with a steady hand and a commitment to your financial success.

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March Highlights

• U.S. Markets struggled with tariff uncertainty and mixed signals from the new administration.
• International Equities Outperform as U.S. Sentiment Weakens

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2US Markets

The first quarter of 2025 has been marked by heightened volatility. To put recent market movements into context, it’s important to first understand the prevailing consensus entering the year. Following another year of U.S. equity outperformance relative to international markets, many investors anticipated that a newly elected Republican administration would reinforce the narrative of U.S. exceptionalism. This was expected to come hand-in-hand with an “America First” policy agenda that could exacerbate existing challenges for global growth, particularly in emerging and export-driven economies. However, the market’s expectations have not aligned with the realities that have unfolded. Instead of providing a boost to domestic growth, the unpredictable trajectory of U.S. trade policy has introduced new layers of uncertainty. Throughout Q1, tariff-related developments acted as a persistent source of market disruption. The introduction of new tariffs on imports from key trading partners—including Mexico, Canada, and China—early in the quarter was followed by additional measures targeting steel, aluminum, and automobiles. Compounding the volatility, shifting expectations around further trade actions, particularly those anticipated around the April 2 deadline, drove pronounced swings in investor sentiment.

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US Economy

The Federal Reserve opted to keep interest rates unchanged throughout the first quarter, maintaining a cautious stance amid evolving economic conditions. While no immediate policy adjustments were made, Fed Chair Jerome Powell struck a dovish tone during the March meeting, signaling that the Committee remains attentive to downside risks to growth—perhaps more so than residual inflation pressures.

Economic data released year-to-date appears to validate the Fed’s more measured posture. A gradual cooling of U.S. economic activity has taken hold in early 2025, prompting a growing divergence between headline expectations and real-time economic indicators. While the current consensus forecast for full-year 2025 Real GDP stands at 2%, more dynamic models are painting a less optimistic picture. The Atlanta Fed’s GDPNow model, widely watched for its near-term accuracy, now projects a sharp contraction of -3.7% for Q1. Even when adjusted for distortions related to gold imports and exports—a factor that has skewed some recent data—the alternative model still forecasts a modest contraction of -0.5%.

The Conference Board’s Consumer Confidence Index declined for a fourth consecutive month in March, reinforcing concerns about the underlying strength of the U.S. economy. Of the Index’s five components, only the assessment of present labor market conditions saw a marginal improvement. Conversely, views on current business conditions softened, moving closer to neutral territory.

More notably, forward-looking expectations deteriorated significantly. Consumers’ outlook on future business conditions became increasingly pessimistic, while confidence in future employment prospects fell to its lowest level in over a decade². Even more concerning, the resilience previously observed in consumers’ income expectations has faded. Optimism about future income, which had held firm in recent months, has now eroded—suggesting that broader macroeconomic concerns are beginning to influence consumers' views of their own financial well-being.

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Global Markets

Against a backdrop of heightened volatility and slowing growth in the U.S., international equities have delivered relatively stronger performance year-to-date. Europe, in particular, has surprised to the upside—led by Germany, where political and fiscal dynamics have begun to shift meaningfully. Friedrich Merz, widely expected to become Germany’s next chancellor³, has proposed easing the long-standing debt brake to fund increased defense spending and a bold €500 billion infrastructure program. The proposals, unveiled in March, initially caught markets off guard but were ultimately well-received by equity investors. Germany’s DAX Index closed out its best first quarter since 2023, buoyed by rising expectations for growth.

The European Central Bank echoed this optimism. ECB President Christine Lagarde publicly praised the fiscal pivot during the bank’s March meeting, framing it as a constructive step toward more balanced policy support⁴. The ECB also moved decisively on rates, cutting twice during the quarter. As of quarter-end, markets were pricing in an additional 60 basis points of easing by year-end—further supporting risk assets across the region.

Asian equity markets have presented a more mixed picture, with significant dispersion across countries and sectors. Chinese equities led regional performance, gaining 16.09% year-to-date. A combination of factors contributed to the rebound: U.S. tariffs announced thus far have been less disruptive than initially feared, sentiment around Chinese technology improved markedly following DeepSeek’s high-profile AI breakthrough in January, and Beijing has signaled a more constructive policy stance in recent weeks.

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