Institute Alert

Key takeaways

• Global equity markets continue to slump as the Trump administration’s reciprocal tariffs begin this week with no signs of backing down.
• The longer the uncertainty lasts and the tariffs stay in place, the higher the likelihood that inflation reaccelerates and economic growth slows.

What it may mean for investors

• Our favorable rating on Commodities may help hedge against potential inflation effects. Our equity guidance prioritizes quality, while our fixed-income guidance emphasizes selectivity.
• We continue to focus on quality, with overweights to U.S. Large and Mid Cap Equities.

President Trump’s new reciprocal tariffs take effect this week, covering imports from most trading-partner countries and including some of the largest sources of U.S. imports. At the same time, he imposed a 10% minimum tariff on all countries. Since the announcement last week, global equity markets have cratered as investors try to assess the potential damage to the economy and earnings.

China immediately announced retaliatory tariffs of 34% on all U.S. imports beginning April 10. Other countries around the world likely will retaliate against the Trump administration’s new tariff policy, while others have shown a willingness to work with the U.S. on existing trade policy. The longer the uncertainty lasts and the tariffs stay in place, the higher the likelihood that inflation reaccelerates and economic growth slows. We believe recession risk has ticked higher but remains unlikely.

What to do now?

The speed of market correction has been historic, the sixth fastest to develop since 1930. The nature of lingering uncertainty is that positive and negative developments can come along and reinforce apprehension or give some false hope before, finally, market prices stop falling. If the uncertainty continues, corporate leaders may have to wait to learn how to allocate their capital to grow business. The economy could fall into recession and lower equity prices could follow. Likewise, the Federal Reserve could cut interest rates further and give the economy and markets a shot of optimism.

For investors who have cash and want to consider investing, even amid uncertainty, we would stick with quality. Our favorable rating on Commodities may help hedge against potential inflation effects. Our equity guidance prioritizes quality, while our fixed-income guidance emphasizes selectivity. International economies depend more on trade than does the U.S. economy, so we favor U.S. equities. Among the U.S. markets, we favor Large and Mid Cap U.S. Equities and select sectors (Information Technology, Communication Services, Financials, and Energy). We also favor investment-grade fixed income and would focus on corporate bonds and essential-service municipal securities. As for maturities, the middle range (3 – 7 years) offers the best value at this time, in our view.

For investors who have a long-term focus and want to remain cautious here, some buffer can make sense. Money-market rates are a lot higher than they were the last time major uncertainty landed on financial markets, at the beginning of the COVID-19 lockdowns. So, for now, money-market rates above 3% are one consideration. As prices settle, legging back into financial markets, especially for investors underweight to strategic targets, remains a priority.

From a technical standpoint, the S&P 500 Index (4889) remains in an uptrend, as the 50-day moving average (5820) remains above the 200-day moving average (5757), but a change to a downtrend is imminent. The next level of support to watch should be the April 2024 low (4967) followed by the October 2023 low (4117). Resistance should be found at the 200-day moving average (5757).

Source: Bloomberg, April 7, 2025. The S&P 500 Index is an unmanaged index considered representative of the U.S. stock market. It is not possible to invest directly in an index. Past performance is no guarantee of future results.

Forecasts are not guaranteed and based on certain assumptions and on views of market and economic conditions which are subject to change.

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Small- and mid-cap stocks are generally more volatile, subject to greater risks and are less liquid than large company stocks. Bonds are subject to market, interest rate, price, credit/default, liquidity, inflation and other risks. Prices tend to be inversely affected by changes in interest rates. High yield (junk) bonds have lower credit ratings and are subject to greater risk of default and greater principal risk. The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investing in a volatile and uncertain commodities market may cause a portfolio to rapidly increase or decrease in value which may result in greater share price volatility. Sector investing can be more volatile than investments that are broadly diversified over numerous sectors of the economy and will increase a portfolio’s vulnerability to any single economic, political, or regulatory development affecting the sector. This can result in greater price volatility.

Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future.

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The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

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