Daniel Casali, Chief Investment Strategist from Evelyn Partners, the wealth manager, says: “President Trump’s threats to impose a 50% US tariff on the imports of goods from the EU (effective 1 June) and a 25% tariff on some Apple products not made in the US shows that negotiating trade deals with the US is unlikely to go in a straight line and adds an element of risk for investors.
Casali adds: “Today’s news on tariffs has not surprisingly, negatively affected stocks. Nevertheless, there has been some recent developments to suggest that trade disagreements may be broadly on the path to resolution, as political attitudes toward negotiation evolve.
“First, in mid-May, President Donald Trump announced a “total reset” in relations with China. This included a reduction in US tariffs on Chinese imports to 30% from 145% previously. China responded by cutting retaliatory tariffs on US imports to 10% from 125%.
“Second, Trump announced a “full and comprehensive” US-UK trade deal. Though the agreement remains informal and unlike a ratified treaty, it can be subject to future amendments. Additionally, the deal is limited in scope, focusing mainly on autos and steel, while the baseline 10% tariff on most goods persists.
“Third, US tariffs appear to have fast-tracked other global trade agreements. For example, the UK agreed a trade deal with India that has been three years in the making. The UK also struck a new trade deal with the EU in what could be a significant reset in their post-Brexit relationship.
“Given these developments, market sentiment has improved since “Liberation Day” on 2 April when global equities experienced a significant downturn from policy uncertainty and geopolitical risks. However, optimism about easing trade tensions has led to a staggered recovery in stocks. The MSCI All Country World (ACWI) benchmark total return index (in sterling terms) is 8% below its all-time high, as against 17% at its low in early April.”
Bottom line:
Casali adds: “Ultimately, long-term investors may find reassurance in analysts’ consensus projections of 8.0% and 12.5% Earnings Per Share growth for globally listed stocks in 2025 and 2026, respectively. It may be a case of going back to company earnings as a key indicator of future stock market performance and to look through some of the headlines coming from trade protectionism.”
