Market Note – April 7, 2025 – Impact of Trump Tariffs

Reciprocal Tariffs

Since his appointment as President of the United States on January 20, 2025, Donald Trump has continuously announced new tariffs. In February, he communicated the imposition of “reciprocal tariffs” aimed at matching the tariffs imposed on American products. These reciprocal tariffs are set to be announced on Wednesday, April 2.

Tariffs Much Higher Than Expected

Far from a simple tariff adjustment, the reciprocal tariffs became a tool for correcting the U.S. trade deficit with other countries. As a result, the imposed percentages were significantly higher than initially expected by the market, with a negative impact on equity markets. Highlights include a 34% tariff on Chinese imports, 20% on the European Union, and 24% on Japan. Some Asian countries will face tariffs close to 50%. All tariffs will come into effect on Wednesday, April 9.

Market Impact

Imposing such high tariffs on global trade implies:

• Lower overall economic growth with reduced expected GDP levels.
• Higher inflation due to increased production costs for businesses.

Following the announcement of the tariffs, global markets experienced sharp declines on Thursday, April 3 and Friday, April 4. U.S. indices like the S&P 500 dropped -10.53% over those two days. The Nasdaq-100 has now fallen over -20% from its February highs.

European markets, which had outperformed Wall Street up until now, also recorded similar losses. The Eurostoxx-50 index fell by -8.02% between Thursday and Friday.

Talenta Portfolio Performance

The current environment is marked by high volatility, a factor that may lead to rash decisions. Further declines cannot be ruled out, nor is it unlikely that the situation could reverse. The Trump administration may suspend the reciprocal tariff program, which would trigger a strong market rebound. Therefore, Talenta will continue to prioritize analysis and prudence in the coming sessions.

Additionally, Talenta’s 2025 portfolios were implemented with a defensive approach. Key points include:

• Low exposure to equities at the start of 2025. Current levels range from 25% to 35% for moderate profiles.
• Strong performance of fixed income (the majority asset class in the portfolios).

Part of the losses in equities are being offset by gains in fixed income. The market expects central banks to cut rates more aggressively in 2025 to counteract the economic slowdown caused by the tariffs, boosting bond prices.

Historically, fixed income acts as a safe haven during volatile market periods, and this is again evident in recent sessions with rising bond prices.

Taking all of this into account, and pending final returns for portfolio components as of last Friday’s close, it is estimated that the cumulative return for 2025 is around -2.0% for Talenta’s Moderate Profile portfolios and Mixed Funds.

It's worth noting that even if equity markets remain at current low levels, Talenta’s portfolios would continue to improve returns throughout the year, as approximately 75% of fixed income coupons are still to be delivered.

Future Portfolio Actions

As previously mentioned, we could still see further declines until markets find a bottom, or conversely, a rapid turnaround could occur. At Talenta, we are closely monitoring the situation to identify potential opportunities without compromising the current defensive structure of the portfolios.