The US’s announcement of a massive increase in tariffs on its trading partners on the self-proclaimed ‘Liberation Day’ last week is estimated to raise the effective US tariff rate from below 3% before the new administration took office to above 20%. The main justification for the sharp increase in tariffs is the US’s perception that it is being cheated on trade, which suggests that the announced tariffs are intended to force countries to negotiate trade deals that are more favourable for the US. This is reflected in the formula used to calculate the reciprocal tariff rates, which is not related to the tariff rate that countries impose on imports from the US but rather to the trade surplus a country has with the US. This could complicate tariff negotiations, which may well drag on for the next 3–9 months and include retaliation, as well as further US tariff announcements. While the ultimate deals will, in most cases, likely result in lower trade barriers than those announced last week, the ongoing uncertainty will create headwinds for global growth.
Increased risks for global growth
In the US, consumers will face higher prices and will likely cut back on spending while policy uncertainty is weighing on investment. We have lowered our US growth forecast to 1.6% (from 2.0%) for 2025 and 2.0% (from 2.3%) for 2026. In Europe, the tariffs worsen the outlook for the already weak export sector. We have lowered our eurozone growth forecast to 0.6% (from 0.8%) for 2025 and to 1.0% (from 1.3%) for 2026. The lower growth prospects for Switzerland’s major export destinations and the high tariff rate on Switzerland have led us to lower our Swiss growth outlook to 1.0% (from 1.3%) for 2025 and to 1.6% (from 1.8%) for 2026. For China, we maintain our below-consensus growth forecasts of 4.2% for 2025 and 3.8% for 2026 but have shifted the quarterly growth pattern, which reflects a stronger first quarter but weaker growth rates in the second and third quarters.
How to navigate the current market conditions
Portfolios are more likely to become unbalanced when markets are unpredictable. This is when the time spent setting your initial investment goals will really pay: Remember your goals, stick with your strategy and invest for the long term. Tweaks could look as follows:
Equities
“Beyond the downside risks to earnings estimates, valuation multiples will remain under pressure as long as the uncertainty persists. For now, we continue to caution against prematurely buying into market weakness, especially in the US. We advise using any short-term strength in US equities over the next few weeks to sell and further diversify into non-US equities, such as Europe and China.”
Philipp Lienhardt - Equity Research
China
“It may take time for the two nations to even start negotiations, and the process may be lengthy. This means that the stock market will navigate the next six months with low visibility on the trade outlook, barring a large and well-coordinated domestic stimulus plan in the near term (of which, we see a low probability). We now expect lower support levels for the Hang Seng Index at around 19,000–19,500. While we still see some chance of a rally in the second half of 2025, the timing is less exact, depending on how trade and geopolitics play out. Moreover, we maintain our long-term preference for dividend/buy-back stocks and see these as a ‘hiding place’ in the next few weeks and prefer domestic names to exporters.”
Richard Tang, CFA - Research Hong Kong
Fixed income
“Even if spreads widen further in the current volatile environment, we advise against adding credit risk before the market stabilises. The risk load should be concentrated in emerging markets and the US crossover debt space, i.e. BB and BBB rated corporate bonds, which are in a better position to efficiently absorb the current shock. Even in a more severe economic path, this segment should have a limited impact on actual credit losses, given the favourable starting point in terms of credit fundamentals. The weaker corporates will certainly have more difficulties if financial conditions do not improve, as market access for refinancing will be very rocky and most likely not accessible for such companies.”
Dario Messi, CFA - Fixed Income Research
Alternative investments
“Alternative investments, such as hedge funds and private markets, can provide a welcome respite from the turmoil in traditional markets. These assets often benefit from a more stable net asset value (NAV) and can help reduce the psychological impact of market fluctuations.”
Diego Würgler, Head of Investment Advisory
Commodities
“We have trimmed our projections for oil demand and believe that US oil production and exports will become the main victims of rising global supplies and intensified competition for market shares. Both world oil demand and US shale output head for stagnation, if not decline, ending the US oil supremacy. We maintain our Neutral view but have cut our price forecasts to USD 60 per barrel on both a 3-month and 12-month horizon. Elsewhere, European natural gas prices are succumbing to ample supplies. We maintain our Bearish view and lower the 3-month forecast to EUR 27.5 per megawatt hour. Moreover, we expect gold’s record run to continue. The bullish market mood is a short-term warning signal, but does not impact the long-term outlook. Our conviction in gold’s uptrend has increased to high for the time being. China’s retaliation to the US trade conflict escalation hit industrial metals particularly hard. In terms of aluminium and copper, we stick to our Neutral views with risks skewed to the downside, and we reiterate our Cautious view on iron ore.”
Carsten Menke, CFA & Norbert Rücker - Macro & Next Generation Research
Remain diversified across regions, sectors, and asset classes
In a world where experts abound, yet few truly understand the complexities of geopolitics, the best strategy is to remain diversified across regions, sectors, and asset classes. By spreading your investments and adopting a long-term perspective, you’ll be better equipped to weather the uncertainties of the current market environment. Remember, nobody has a crystal ball, and even the most seasoned experts can be wrong. Stay vigilant, stay diversified, and be prepared for whatever comes next.