Markets under pressure due to uncertainty over trade war
US President Donald Trump’s policies are forcing changes across the global stage and impacting financial markets. How should you, as an investor, deal with this?
Initially, stock markets reacted positively to the election of Donald Trump as the new US president. This was not surprising, as Trump had tax cuts and deregulation high on his agenda. These measures were seen as likely having a positive effect on businesses and the economy.
The same agenda also included the introduction of import tariffs, where the US government levies taxes on goods imported from abroad. The impact of these tariffs was initially seen as less significant, more of a negotiation tactic than a serious threat. Sentiment, however, has changed in recent weeks. US stocks, in particular, are under pressure, but tension is also felt elsewhere.
Why are the import tariffs causing unrest in the financial markets?
If the higher costs due to import tariffs are passed on to consumers, this can lead to higher inflation. Consequently, global economic growth may come under pressure. Especially because further rising inflation also leads to the Federal Reserve (Fed) keeping the policy rate high for longer.
What can investors expect?
Trump has talked a lot in recent weeks about the introduction of import tariffs. Initially, these are supposed to apply to China, Canada, and Mexico. He is also threatening additional import tariffs for other countries beginning in April. Whether everything will actually be implemented is difficult to predict.
The threat of implementation — and the significant uncertainty it creates — is a concern for investors, not only in the countries where tariffs are imposed but also in the US itself. Several confidence indicators have shown a declining trend in recent weeks. Investors are wondering whether these measures might lead to a recession.
Is ABN AMRO adjusting its investment strategy due to the uncertainty?
Within our investment portfolios, we have made a few small adjustments. Earlier this year, we had already decided to reduce the overweight in US stocks and increase the weighting in European stocks. The allocation to the IT sector has also been reduced. As it stands now, this seems to be the right choice, as the large IT companies, the Magnificent 7, have struggled in recent weeks. These seven very large US tech stocks have driven a significant portion of US and international stock returns in recent years. The expectation is that the performance of these companies will become more varied. For example, due to sentiment and competition from Chinese tech companies.
What effect do import tariffs have on investment portfolios?
We have made an estimate of the possible consequences of import tariffs on the stocks in our investment portfolios. It is virtually impossible to map the exact impact. However, we can better assess the risks by examining the countries where the companies are active, where the production of goods takes place and how the stock prices developed during Trump's first term. This way, we can make the portfolio somewhat more resilient to potential tariffs.
How can I best deal with this as an investor?
Investing always involves a certain degree of uncertainty. At the moment, the uncertainty is high. In such a situation, our advice is not to make significant changes to the investment portfolio. Several core principles provide guidance:
- Investing is for the long term. Short-term fluctuations and even corrections of 10% are not unusual. However, in the long term, stock markets generally go up.
- Ensure good diversification in the investment portfolio, including across regions and sectors. In 2025, US stock markets have declined, while European stocks still show a gain. By investing in both, the risk in the investment portfolio is reduced.
- Try not to time the markets too much by stepping in and out. By remaining invested, the investor captures both the peaks and troughs in the financial markets. Missing out on a few good days can have a significant impact on the eventual return, so it is better to stay invested.
Waiting for clarity
We expect that the uncertainty and volatility in financial markets will persist for a while. Investors will continue to react to Trump's statements. Based on the various uncertainties, our advice is not to make significant changes to your investment portfolio, but to wait calmly until more clarity emerges. We will keep you informed weekly, or more often if necessary, through our vlogs and updates of the Investment Strategy.
Richard de Groot
Chair ABN AMRO Investment Committee