SSGA: Liberation Day means recalibration
Jennifer Bender, Global Chief Investment Strategist at State Street Global Advisors, comments on the Trump's upcoming set of tariffs due on April 2:
'Like a GPS trying to adjust its route after a few unexpected turns, sentiment continues to readjust to each turn in tariff news. Amid this backdrop, in our tactical models we shifted between buying and selling US equities in recent weeks, opportunistically taking advantage of these changes in sentiment. Specifically, we considered the difference between sell-side upgrades and downgrades to sales and earnings. Over recent months, we have seen figures for the US deteriorate, while non-US (noticeably Europe) improved – a factor in our decision to be overweight Europe heading into 'Liberation Day'.
Despite the moniker bestowed by the administration, the event should more likely be a signpost for investors to recalibrate expectations of asset vulnerabilities to undefined economic policies. Not to mention, recalibrating or reorienting to the fact that while April 2 may be a culmination of 10 weeks of frenetic news, it does not mean the uncertainty will stop or quickly mean revert. The US Categorical Economic Policy Uncertainty Trade Policy Index is 1,604% above its long-term historical average. The only other time it spiked this high was back in 2018, during Trump’s first term and round of tit-for-tat-tariffs.
Point being, while April 2 may provide a brief period of clarity, it is unlikely to be the last trade-fueled policy quick-turn that the market’s GPS will have to adjust to. As a result, 'Recalibration Day' might be a better way to characterize this day on the calendar. Investors must start to recalibrate for lesser global cooperation and what it would mean if local countries become equally restrictive – that is, if US companies are no longer able to derive 40% of their profits from overseas. Investors must also brace for potential transitory inflation, as well as the reaction from central bank policy makers (and assets) to increased inflation in this new stop-and-start economic equilibrium – among other news and data points that will be fed into the GPS.'
