4 April 2025: Weekly Update – Global Market Sell-Off and Trade Escalation

Friday’s sell-off was particularly brutal, taking the S&P 500 down over 9% for the week and pushing major indices closer to bear market territory. Technology stocks bore the brunt of the downturn, as companies like Apple and Amazon - heavily reliant on global supply chains - saw their shares tumble. Investors fled high-risk assets en masse, shifting their focus to safe havens such as US Treasury bonds and gold. The yield on the benchmark 10-year US Treasury note fell below 4%, while the gold price dipped from it's all time high but remains above $3,000 per ounce.

The tariffs represent one of the largest tax hikes in US history, effectively imposing an estimated 1.5% hit to US GDP and a 1.5% inflation impulse. These measures could severely disrupt global trade flows, exacerbate inflationary pressures, and push multiple economies into recession. JPMorgan raised its recession probability for the US and global economies to 60%, citing the ripple effects of reduced consumption and investment. Bond markets reflected growing fears of an economic downturn, with yields falling sharply as investors sought refuge in government securities.

Commodities markets were equally volatile, though performance varied across sectors. Oil prices continued their downward trajectory, with Brent crude falling to around $63 per barrel - its lowest level since 2021 - as fears of reduced global demand overshadowed OPEC production cuts.

Currency markets saw significant shifts as well. The US dollar has weakened sharply as concerns about slowing US economic growth have now overtaken trade policy as the dominant narrative in forex markets, leading to a reversal in dollar positioning. The euro has emerged as a key beneficiary of this shift, supported by fiscal reforms within Europe that have bolstered investor sentiment.

Further deterioration to risk assets now seems largely dependent on whether the tariff dispute deepens further or whether compromises with the Trump administration can be reached. Unlike other financial market downturns of recent years the US Federal Reserve will be reticent to step in unless financial stability becomes an issue. The inflationary impact of tariffs pushes back against the central bank lowering rates particularly given the instability in US tariff policy, which could look very different in the coming weeks.

In this volatile environment, diversification remains critical for portfolio construction. Defensive holdings have helped soften downside risks year to date for the T. Bailey funds of funds. Allocations to cash, debt, absolute return funds and gold represent 55% for the T. Bailey Multi-Asset Dynamic Fund and 45% for the T. Bailey Multi-Asset Growth Fund. In the T. Bailey Global Thematic Equity Fund cash currently represents 6% of the portfolio and equity exposure is broadly diversified, biased to long-term growing themes whilst deliberately avoiding areas of excessive valuation.

This negative phase for financial markets will eventually pass. We anticipate that non-US regions - particularly Europe and Asia - may be in a stronger position to rebound once the dust settles, as investors seek growth opportunities outside the US (where valuations remain elevated). In fact, equity valuations in many European and Asian markets are now more attractive, and we expect policymakers there to take supportive actions to buffer their economies from US trade policies. We remain vigilant for opportunities to redeploy our defensive holdings into risk assets at more favourable levels, particularly in regions outside the US that could benefit from rotation when stability returns. However, given that Europe has yet to fully respond to the US tariff moves and the fluidity of the situation, we believe it is too early to make any definitive allocation shifts. In the meantime, the T. Bailey funds of funds portfolios remain widely diversified and cautiously positioned. The fundamentals of diversification and long-term discipline will remain our guiding principles as we navigate the weeks ahead.