Has the worst of the tariff threat passed?
Global and US equities in May experienced their largest monthly gains since late 2023, on hopes that relations between the US and its top trading partners were back on a more solid footing. A federal trade court also struck down the bulk of President Trump's tariffs from 2 April. But the tariff conflict has further to run, in our view, and while we ultimately expect tariffs to settle at more manageable levels, the process is unlikely to be smooth.
Investment view
We think investors can use periods of volatility or pullbacks to gradually add to US equities or balanced portfolios. Phasing into the market can be an effective way to position for medium- and longer-term upside while managing timing risks. Capital preservation strategies can be another approach to help manage near-term downside.
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The US and China are set to open a second round of trade talks in London after President Donald Trump and China's Xi Jinping spoke over the phone last week. Trump said after the call that the US is “in very good shape with China and the trade deal.”
US President Donald Trump said late on Friday that he would double the tariffs on steel and aluminum to 50% starting this week and accused China of breaching their trade agreement reached in Geneva last month. Beijing on Monday rebuked the claim.
President Donald Trump will impose tariffs at the rate he threatened in early April on trading partners that do not negotiate in "good faith" on deals, Treasury Secretary Scott Bessent said in television interviews over the weekend. But he did not say what would constitute "good faith" negotiations or clarify the timing to announce any decisions to return a country to the various rates Trump initially imposed on 2 April.
Did you know?
On 28 May, the US Court of International Trade issued a unanimous decision that requires an immediate injunction against all tariffs levied under the International Emergency Economic Powers Act (IEEPA) of 1977.- That affected the initial “trafficking” tariffs on China, Canada, and Mexico; the worldwide 10% baseline tariffs; and the additional “reciprocal” tariffs on countries running goods trade surpluses with the US—though any remaining tariffs will remain in place pending appeals.
- Tariffs on autos, auto parts, steel, and aluminum were not a subject of the legal challenge.
- Our base case that the effective US tariff rate will settle around 15% would still represent a six-fold increase on its 2.5% level when President Trump returned to the White House at the start of this year.
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Disclaimer
Global asset class preferences definitions
The asset class preferences provide high-level guidance to make investment decisions. The preferences reflect the collective judgement of the members of the House View meeting, primarily based on assessments of expected total returns on liquid, commonly known stock indexes, House View scenarios, and analyst convictions over the next 12 months. Note that the tactical asset allocation (TAA) positioning of our different investment strategies may differ from these views due to factors including portfolio construction, concentration, and borrowing constraints.
Most attractive – We consider this asset class to be among the most attractive. Investors should seek opportunities to add exposure.
Attractive – We consider this asset class to be attractive. Consider opportunities in this asset class.
Neutral – We do not expect outsized returns or losses. Hold longer-term exposure.
Unattractive – We consider this asset class to be unattractive. Consider alternative opportunities.
Least attractive – We consider this asset class to be among the least attractive. Seek more favorable alternative opportunities.
Note: For equities, we have collapsed “Most Attractive” with “Attractive” and “Least Attractive” with “Unattractive” from the five-tier rating system that is found in the Equity Compass into three tiers.