As markets grapple with the uncertain trajectory of global trade policy, Daniel White, Head of Global Equities at M&G, explores the implications of tariffs on equity markets, highlighting the need for selectivity amid volatility.
Daniel White, Head of Global Equities at M&G, said:
Markets remain undecided on whether reciprocal tariffs are merely a temporary ‘shock and awe’ negotiating tactic or a more structural and permanent measure, or even both. As negotiations and trade deals outside of China appear to gain traction, key questions remain unanswered: What is the timeline and how high are the standards for negotiations? Which countries can offer deals that meet both realistic and sufficient criteria for the White House? What might be the extent of overall tariff relief?
In light of these uncertainties, market volatility is expected to persist. Should equity and bond markets stabilise, this could arguably enable President Trump to maintain his stance on tariffs – and vice versa – with the potential for this feedback loop to further exacerbate market volatility.
This is an environment to be selective. Given the potential tariff headwinds and increased recession risk, we’re focusing on companies with strong or resilient balance sheets. While we see some opportunities within the more macro-sensitive or cyclical sectors, we generally favour industrials, particularly providers of critical infrastructure, machinery, or components, over consumer cyclicals. Careful portfolio construction is also vital; as global investors we strive for bottom-up stock selection to drive investment returns rather than relying on specific macro scenarios, taking a long-term view and focusing on the underlying fundamentals of the businesses we’re investing in.
The US has consistently demonstrated structural advantages such as higher profit margins, stronger labour productivity, and rapid wealth creation versus other regions. There are also disproportionate number of world class and unique businesses listed in the US. Despite current market volatility, US equities remain a strong long-term investment, but global investors should consider a mix of regions, as evidenced by the relative outperformance of European equities year to date. At the beginning of 2025 – following very strong performance in 2023 AND 2024 – parts of the US equity market had become overextended. Many of our global equity portfolios were already underweight US equities and had also shifted towards more defensive sectors including healthcare and consumer staples at the beginning of 2025. We also felt that parts of the US equity market had become overextended and that the risk-reward had become more attractive elsewhere. So the recent market correction provides an opportunity to invest in some of these higher quality US businesses at more attractive valuations.
