April was a tariff roller coaster month in the stock markets. The 2nd of April was designated liberation day and the US administration announced tariffs on a shedload of countries, including islands populated only by penguins. The tariffs were much higher than anybody expected and were calculated with an irrelevant formula.
US stocks, bonds and the currency fell. After that markets were hostage to political announcements. Stocks fell when the rhetoric was hawkish and rose whenever there was an indication the tariff regime was being softened.
However, there was strong recovery in stocks the last nine days of the month. The Nasdaq 100 Index was up 0.69% over the month while the S&P 500 was only 1.14% down having been about 11% lower on 8th April.
Our portfolio had a similar ride and was flat at the end of the month in GBP terms. The GBP rose by 1.53% over the month against the US$. In US$ terms, our portfolio rose by by 1.5%.
We had started the month with 22% of our portfolio in cash. As stocks fell, and some good value emerged we cautiously invested some of this and we ended the month with cash at 9%.
We have stated before that stocks are unlikely to rise before there is substantial pull back on the generalised tariffs that have been imposed by the Us government. However, we do not expect a decisive withdrawal but a series of concessions over a long period. The current 90-day limitation on Tariffs (apart from China) ends on July 8th. It remains to be seen how many trade deals are agreed in this period, but we would be surprised to see a large number. Trade talks take a lot of time and barely two months remain, in which the US must thrash out deals with virtually every other country on the planet.
However, all this is creating a great deal of uncertainty and inflicting a lot of damage on the economy. Consumer confidence has fallen as Americans fear for their jobs and see their stock portfolios fall.
Yesterday data showed the US economy shrank by 0.3% in the first three months. This was mainly due to imports which were bought forward to avoid tariffs. This does means imports are likely to be subdued in the next two or three quarters which is a small positive.
GDP is backward-looking, and the Q1 number pre-dates the point at which the tariffs begin to have an impact. Many economists now believe there is a greater than even chance of a recession on the USA in the next twelve months.
There has been a collapse in the number ships contracted to sail from China to the USA and many are forecasting empty shelves in US shops in two months.
Our best hope is that various negative trends will lead to a broad retreat in tariffs. However, we worry about the damage inflicted on the US and Global economy in the meantime. This will clearly have negative impact on company earnings and the sentiment for stocks.
We will continue to look at companies as the Q1 reporting season.
We will only invest additional capital if any good companies trade at very attractive valuations.