The US stock market’s recovery from Liberation Day appears complete. But are investors really out of the woods as markets seem to suggest? Perhaps the real lesson lies in the emotional response to the entire episode.
16 May 2025
The US stock market’s recovery from Liberation Day appears complete. But are investors really out of the woods as markets seem to suggest? Perhaps the real lesson lies in the emotional response to the entire episode.
It’s been well over a month now since the infamous Liberation Day tariff announcements, a day the pro-trade Economist newspaper described as “Ruination Day”. Many analysts and commentators predicted – perhaps not unreasonably - a cratering of global economic growth, with the International Monetary Fund’s (IMF) latest World Economic Outlook declaring with some understatement that “Global growth is expected to decline and downside risks to intensify as major policy shifts unfold.” Incredibly, by 13 May the S&P 500 and the tech-heavy Nasdaq 100 indices had both fully recovered their losses and were back in firmly positive territory, having shed an eye-watering 12% and 13%1 respectively from Liberation Day on 2 April to their trough on 8 April. So was it all just a bad dream?
Blink and you’ll miss it – US stocks have more than recovered from Liberation Day:
Performance from 31 Dec 2024 to 12 May 2025
Source: Bloomberg
Past performance is not an indicator of future performance and current or future trends.
Past performance is not an indicator of future performance and current or future trends.
Pragmatism - and deals - to the rescue?
As far as world trade is concerned, there does seem to be renewed appetite from the White House to do deals. The financial chaos following Liberation Day, which included a bond-market sell-off as inflation was priced in (the 10-year US Treasury bond yield climbed to nearly 4.5%1), along with a plunging dollar, drove US Treasury Secretary Scott Bessent to persuade President Trump to offer a 90-day reprieve to nearly all of America’s trading partners on 9 April. And now, following talks in Geneva, China has been added to that list with its reciprocal tariff of 10% as low as Britain’s, the first country the US administration did a deal with. The US economy does not seem to be suffering unduly either. Despite the 0.3%1 contraction of growth in the first quarter of the year, the economic data does not yet seem to be confirming what the gloomy survey data is suggesting. In addition, there is hope that US interest rates will be cut, just as they have pragmatically been by the Bank of England and European Central Bank recently. US interest rate futures are implying fully -50 basis points1 of rate cuts by the end of the year which, in theory, should help the economy from any trade slowdown.
Importantly, the corporate fallout from Liberation Day, particularly for the technology sector which dominates the S&P 500, seems to be showing that there can be life after tariffs. Earnings are still expected to grow by 12%1 by the end of 2026, helped by the resilience and expediency of America’s tech firms. For example, while Apple and Amazon are most exposed to tariffs, Apple is already moving production out of China, with most devices for US resale soon to be coming from India and Vietnam. Amazon is engaging in forward buying to mitigate tariff effects while the firm’s CEO noted that not all third-party sellers will raise prices. As for Meta and Google, both have reported solid sales so far in Q2 while the former’s parent Alphabet is outright lifting its capital expenditure forecast with a USD 75 billion2 spend slated for applications including artificial intelligence, data centres and cloud infrastructure. And Microsoft’s sales forecasts remained strong as corporate sector IT spending remains broadly unaffected by the tariffs.
The global economy isn’t out of the woods yet
But these sources of comfort may be false ones. The US administration’s aggressive reciprocal levies on other trading partners have only been delayed, not waived altogether. Furthermore, whatever deals are done, tariffs are unlikely to go back to pre-Liberation Day levels. While Secretary Bessent has been more conciliatory of late, he still advocates tariffs as a way of extracting ‘wins’ from other countries, especially arch-rival China. His ambition in this regard is also what makes tariffs likely to remain a feature of the economic and market landscape for some time. He is after no less than profound reform of China’s economy from export engine to consumption powerhouse, something the Chinese authorities have been attempting with mixed success for several years now. The challenge is that every time the Chinese economy slows down, exports are an easy option for picking up the slack as they were in the disappointing aftermath of China’s post-pandemic re-opening. American pressure to fix this is likely to remain poorly received. Following the Geneva trade talks, Chinese officials emphasised that negotiations had to proceed on the basis of “fairness and mutual understanding”, a coded way of rejecting on-going US interventions.
As for the US economy itself, indicators of weakening trade are making themselves apparent. China’s export orders are in decline while ships are being turned around on their way to the US with potential consequences for inflation. Corporate America is scaling back investment and planning layoffs as consumers grow more concerned about inflation and unemployment. Against this backdrop anticipated rate cuts will only help so much. They can’t fix disrupted supply chains (see 2021) and they certainly can’t fix higher inflation (see 2022). No less than a complete reversal of Liberation Day will spare the US economy entirely and remove the risk of disruption from markets. But this seems unlikely given how invested the administration is, even if it does re-package some concessions and delays as great victories. Parts of the market sense this too even if stocks don’t. The US dollar index is still off nearly -8%1 from its mid-January high as of 13 May, while gold continues to trade at over USD 3,200 / oz1.
Not so sure – the US dollar and gold are trying to tell us something:
Performance from 31 Dec 2024 to 13 May 2025
Source: Bloomberg
Past performance is not an indicator of future performance and current or future trends.
Past performance is not an indicator of future performance and current or future trends.
The real lesson for investors surely remains the complete unpredictability of markets in the short term and the difficulties associated with trying to ‘play’ them. A brief survey of the deluge of analysis that was written following Liberation Day revealed deep gloom among many analysts. Even accounting for the fact that bad news sells copy, headlines such as Forbes’ “Wall Street’s tariff-driven slump could turn into a full bear market” in mid-April seem both premature and out of date all at once. All of this also highlights the importance of a well-advised multi-asset allocation that can anticipate and absorb volatility without deviating from long-term objectives. Done properly, the result should be investors watching recent (and upcoming) weeks with bemusement rather than outright horror.
Julian Howard is Chief Multi-Asset Investment Strategist at GAM Investments. This article represents the views of GAM’s Multi-Asset team.
1GAM / Bloomberg. May 2025
2Alphabet / Reuters, April 2025 https://www.reuters.com/technology/alphabet-ceo-reaffirms-planned-75-billion-capital-spending-2025-2025-04-09/
2Alphabet / Reuters, April 2025 https://www.reuters.com/technology/alphabet-ceo-reaffirms-planned-75-billion-capital-spending-2025-2025-04-09/
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The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. Specific investments described herein do not represent all investment decisions made by the manager. The reader should not assume that investment decisions identified and discussed were or will be profitable. Specific investment advice references provided herein are for illustrative purposes only and are not necessarily representative of investments that will be made in the future. No guarantee or representation is made that investment objectives will be achieved. The value of investments may go down as well as up. Investors could lose some or all of their investments.
The S&P 500 Index is a stock index tracking the performance of 500 of the largest, publicly traded companies in the US. The Nasdaq 100 Index is a stock index that tracks the performance of 100 of the largest non-financial companies listed on the Nasdaq stock exchange, based on market capitalisation. Created by the US Federal Reserve in 1973, the US Dollar Index is a measure of the US dollar's value relative to a basket of six major foreign currencies: Euro (57.6% weight), Japanese Yen (13.6%), British Pound (11.9%), Canadian Dollar (9.1%), Swedish Krona (4.2%), and Swiss Franc (3.6%).
References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in indices which do not reflect the deduction of the investment manager’s fees or other trading expenses. Such indices are provided for illustrative purposes only. Indices are unmanaged and do not incur management fees, transaction costs or other expenses associated with an investment strategy. Therefore, comparisons to indices have limitations. There can be no assurance that a portfolio will match or outperform any particular index or benchmark.
This article contains forward-looking statements relating to the objectives, opportunities, and the future performance of the equity markets generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.
This disclosure shall in no way constitute a waiver or limitation of any rights a person may have under such laws and/or regulations.
In the United Kingdom, this material has been issued and approved by GAM London Ltd, 8 Finsbury Circus, London EC2M 7GB, authorised and regulated by the Financial Conduct Authority.