Welcome to a special edition of this week’s Market Pulse, published earlier than usual to cover Trump’s recent tariff announcements and the ensuing market sell-off. Our mission at Sidekick is not just to provide products that unlock the financial advantages of the ultra wealthy, but also the knowledge and context required to navigate the ups and downs of wealth building.

And so, to our number of the week…

-10.7%

That’s how much the S&P 500 fell in the three days following Trump’s Liberation Day tariff announcements. It’s one of the worst three-day drawdowns in recent memory, on par with the Global Financial Crisis and the Covid Pandemic. 

In today’s issue, we’ll offer five key takeaways from Trump’s tariff announcement and the current market turmoil.

Although Tuesday brought some relief with a partial recovery, tariff-driven volatility may not subside for some time. 

Only have a minute to read? Here’s the TL;DR:

• Markets were taken aback by the scale of US tariffs, which soared to levels not seen since 1909. Trump’s method of calculating tariffs also sowed confusion.
• The economic impact of tariffs remains uncertain, with the potential for currency adjustments and supply chain adaptation to mute the worst impacts. In fact, many on Wall Street still predict economic growth this year.
• For investors, staying the course during market volatility has historically led to stronger long-term wealth generation. Liquidating during drawdowns can mean missing an ensuing recovery. 

It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.

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#1: Tariffs Were Higher Than Expected

Trump has been vocal about his desire to use tariffs to balance America’s trade deficit. So, why does it seem like markets were taken by surprise?

Simply, the announced measures were far higher than many analysts expected:

• Trump’s universal 10% tariff was mostly anticipated. 
• However, the targeted tariffs on specific countries went much further, including a total rate of 54% on China and 20% on the EU.
• Altogether, America’s average tariff rate reached a level not seen since 1909.

Part of the sell-off was also likely a reaction to the haphazard calculation methods used.

Despite being called ‘reciprocal’ tariffs, the levies were determined based on a country’s trade surplus with the US divided by total exports – a calculation with strikingly little economic justification.

This has resulted in significant confusion on what countries can offer in a negotiation to lift the tariffs, and what Trump actually hopes to achieve.

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#2: The Economic Impact is Uncertain

While it may sound trite, the economic impact resulting from these tariffs is highly uncertain – and that’s a much different conclusion than the economic impacts being terrible.

Yes, tariffs were higher than anticipated, and Trump’s end-game has sowed confusion. But markets still don’t know what the full impacts of these tariffs will be. 

Optimistically, it’s possible that:

• Free-floating currencies adjust to dampen rising import costs.
• Greater political support for domestic industrial projects helps foster growth.
• Supply chains adapt to route tariffs and production through low-tariff countries.

In fact, while there’s been much media coverage of Wall Street marking up their recession forecasts, most firms still expect economic growth this year.

Analysts at Goldman Sachs, HSBC, and S&P Global are just some of those who give better-than-even odds for the US to avoid a recession in 2025 – which would help the global economy do so too. 

When investors aren’t sure about the future, they tend to take risk off the table. 

That’s a better interpretation of the market’s recent sell-off than a sign of sure doom. And uncertainty can cut both ways.

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#3: Tariff Adjustments Could Be Coming

The tariff announcements have resulted in some of the most significant internal political divisions that we’ve seen for Trump.

Billionaire investor and Trump backer Bill Ackman called the tariffs ‘massive and disproportionate,’ arguing for a 90-day pause. These criticisms have been echoed across a Trump-friendly Wall Street.

Even Elon Musk has recently advocated for a free trade area between Europe and North America, while some Republican legislators are also pushing back on the president’s strategy.

So far, Trump has been intransigent in the face of this criticism, saying that no adjustments are coming. 

However, he’s left the door open to ‘phenomenal’ offers from other countries. Moreover, reporting indicates that the administration could be working on an export tax credit to dampen the tariff impact.

Given growing political divisions, the depth of the market sell-off, and Trump’s track record of rapidly changing tariff policy, an off-ramp still remains.

While it’s unlikely for the latest tariffs to be walked back completely, we could see a suspension of some higher targeted rates, with the 10% baseline kept as-is.

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#4: The UK Has Tools to Respond

The UK has been hit by Trump’s 10% baseline tariffs, in addition to higher levies on products like steel, aluminium, and automotives.

While Trump’s tariffs do pose a challenge for the British economy, these challenges are not insurmountable. The UK has the tools to respond – Starmer just needs to wield them effectively.

In terms of international relations, the UK can pursue two primary paths:

• Negotiate a direct deal with Trump, possibly by adjusting the UK’s digital services tax, which disproportionately impacts American tech firms.
• Foster closer trade relationships with other nations, such as by continuing to lower trade barriers with the EU and signing more expansive trade deals with countries like Canada and India.

In terms of the domestic economy, the government is limited by its self-imposed fiscal constraints, which could cap the amount of money that Starmer can deploy as a stimulus tool.

However, the government can still make long-term investments, as evidenced by Starmer’s recent £600m commitment to healthcare research. 

In addition, the government has already relaxed EV requirements to help support automakers, along with a £2.3 billion commitment to long-term EV investments.

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#5: Staying Invested Amid Volatility

While the volatility of the past week hasn’t been comfortable for any investor, research indicates that staying invested during turbulent periods helps foster long-term wealth generation.

Market timing is a challenging endeavour. Investors that liquidate their holdings during market drawdowns may miss ensuring recoveries.

In fact, missing just ten of the S&P 500’s best days over the past 20 years would have cut total investment returns by more than half.

And as Tuesday’s partial rebound shows, markets still have the capacity to recover, despite the uncertainty and fear resulting from the tariff shock. 

Over the long term, markets recovered from catastrophes like the Global Financial Crisis and the Covid Pandemic. This latest crisis is unlikely to be any different.

Thankfully, history shows that bear markets tend to be far shorter than bull markets, lasting just 15 months on average.

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Notices

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𝘗𝘭𝘦𝘢𝘴𝘦 𝘳𝘦𝘮𝘦𝘮𝘣𝘦𝘳, 𝘪𝘯𝘷𝘦𝘴𝘵𝘪𝘯𝘨 𝘴𝘩𝘰𝘶𝘭𝘥 𝘣𝘦 𝘷𝘪𝘦𝘸𝘦𝘥 𝘢𝘴 𝘭𝘰𝘯𝘨𝘦𝘳 𝘵𝘦𝘳𝘮. 𝘠𝘰𝘶𝘳 𝘤𝘢𝘱𝘪𝘵𝘢𝘭 𝘪𝘴 𝘢𝘵 𝘳𝘪𝘴𝘬 - 𝘵𝘩𝘦 𝘷𝘢𝘭𝘶𝘦 𝘰𝘧 𝘪𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵𝘴 𝘤𝘢𝘯 𝘨𝘰 𝘶𝘱 𝘢𝘯𝘥 𝘥𝘰𝘸𝘯, 𝘢𝘯𝘥 𝘺𝘰𝘶 𝘮𝘢𝘺 𝘨𝘦𝘵 𝘣𝘢𝘤𝘬 𝘭𝘦𝘴𝘴 𝘵𝘩𝘢𝘯 𝘺𝘰𝘶 𝘱𝘶𝘵 𝘪𝘯.