The fog of uncertainty is lifting
Barbara Reinhard, CFA
CIO, Multi-Asset Strategies and Solutions
After weeks of volatility, the fog of economic uncertainty is beginning to lift. The recent de-escalation in the U.S./China trade conflict marks a major turning point—not because tariffs are disappearing, but because policymakers are beginning to operate with greater clarity around the constraints they face. Here’s how that is likely to affect markets.
The recent 90-day cut to U.S./China tariffs and other signs of stabilization in global trade talks point to a recognition of economic reality by the current administration: supply chains can't be rewired overnight and total decoupling would be deeply disruptive. This acknowledgment offers a foundation for more predictable policymaking.
We’re seeing markets reflect this shift. In equities, U.S. markets have regained their losses since Liberation Day, with the S&P 500 sitting only ~4% lower than all-time highs. In fixed income, high-yield spreads have fallen once again below 300 basis points.
With trade policy now becoming more certain, we should expect to see less volatility in the equity market, as well as less economic drag on sentiment. As the underlying economy seems to be quite durable—corporate earnings growth remains healthy, and inflation is so far surprisingly tame—we still think an overweight to U.S. equities seems warranted.
Maverick Lin contributed to this article.