Heightened uncertainty surrounding tariffs and other policies drove investors to reduce risk in U.S. equities in March. The total U.S. stock market fell nearly 6% while international stocks posted a modest gain. For a second consecutive month, asset class diversification was well rewarded. 

Tallying tariffs

To start the month, some were expecting another delay in tariffs levied against Mexico, Canada, and China, but with a few minor exceptions they did go into effect. To the surprise of some, both President Trump and Secretary of the Treasury Scott Bessent indicated they are comfortable with some market pain to achieve what they see as a greater good from import taxes. 

April 2, coined “Liberation Day” by President Trump, brought another massive increase in tariffs, creating a 10% baseline tariff with many countries much higher. China now faces a 54% duty and the EU 20%. The impact of these taxes is very difficult to predict, but their size does create greater risk regarding the impact on economic growth and inflation. 

Tariffs of this magnitude are likely to create a “supply shock”, similar but much smaller than Covid. Just as trying to time markets in that period proved difficult, we believe investors should avoid emotional responses and maintain long-term allocations. 

The other side of the tariff coin is supposed to be tax cuts, but little has been said in that area. This could be a bullish factor once proposals start to be introduced. While capital markets initially cheered president Trump’s election, the new reality is that his administration is and will be taking dramatic actions. This brings heightened uncertainty. Coupled with a highly concentrated U.S. market, investors should be prepared for significant price movements in both directions. On a positive note, despite all the noise, corporate earnings continue to grow. 

Spotlight on tech

The Magnificent Seven remained especially volatile, contributing significantly to losses for the month. Two events in particular cast doubt on the artificial intelligence capital expenditures story. Alibaba co-founder Joe Tsai said the rush to create new data centers is getting ahead of actual demand and an analyst report from TD Cowen suggested Microsoft has cancelled some leases for new data center capacity.