Ascalon Capital

Background Global equities tumbled last week, after President Trump announced sweeping tariffs on what he dubbed "Liberation Day". That included 10% tariff on all countries (in effect April 5) and reciprocal tariffs on more than 50 countries that took effect on April 9. Global equity markets saw double digit losses over two-day periods. Table 1: Major indices fell sharply after tariff announcements. Last week marked a material shift in the consensus view on the outlook.

We now know who the next President of the United States will be. We also know more about the stimulus that China will provide its economy. Both come against the backdrop of elevated equity valuations, sticky inflation, some signs of slowing growth, and resilient investor sentiment. So where is the risk for investors? Should investors be worried? And how can investors manage portfolios through the medium-term? The Trump trade lifted risk assets.

US inflation is under control. Fed Chair Powell has confirmed rate cuts will come in September. But the recent deterioration in the US labour market has opened the door to the risk of a 0.50% rate cut instead of a 0.25% rate cut. Against this backdrop, US equity market volatility has increased and US Treasury yields have moved lower. What can investors do to position for the beginning of the Fed’s rate cut cycle? The Fed is going to cut – why is the magnitude important?