2 May 2025 2 minute read
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Risk assets bounced back this week following increased hopes of a further de-escalation in the trade war and a positive earnings cycle.

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Read this article to understand:

  • What drove positive equity market performance this week
  • What could derail the rally
  • How we are positioning multi-asset portfolios in this environment

As of the morning of Friday, May 2, US equity markets have achieved their eighth consecutive day of positive returns, bringing their gains over the period to 8.65 per cent. This was largely driven by strong first quarter earnings and positive sentiment around potential trade deals.1

This week marked the first 100 days of President Trump's second tenure. Since his inauguration, he has signed more than 100 directives. Most notably, his plethora of tariffs have taken the average US tariff rate to 28 per cent, the highest since 1901.2 The S&P 500 has declined by over eight per cent.3

There are promising signs of potential trade deals with the US, boosting market sentiment.

Following the 90-day pause on reciprocal tariffs, there are promising signs of potential trade deals with the US, boosting market sentiment. While US tariffs on China stand at 145 per cent and China has imposed a 125 per cent retaliatory duty, both countries have signalled a willingness for trade talks. The US administration has also confirmed that imported autos will not face additional aluminium and steel tariffs, and the EU may share new trade proposals with the US early next week.4

This week, Microsoft, Meta, Apple and Amazon reported their first quarter earnings, which were broadly positive. Given they represent a staggering 40 per cent of the S&P 500, these results drove positive market returns. This was particularly notable given the caution around artificial intelligence (AI), following the announcement of Chinese company DeepSeek's lower-cost AI model in January.5

Both sides of the Atlantic released first quarter (Q1) GDP figures. In the US, GDP contracted by 0.3 per cent in Q1 (against -0.2 per cent expected). This weaker data led investors to price in more Federal Reserve rate cuts, with four cuts now priced in by the December meeting – the highest since the 90-day tariff delay was announced. Sentiment was more positive in Europe, as euro area growth exceeded expectations, coming in at 0.4 per cent (against 0.2 per cent expected). Importantly, both figures cover the period before the reciprocal tariff announcements, so investors will pay close attention to future data releases.

Lastly, oil continued its decline, with the WTI, a key index for oil pricing, reaching its lowest level since March 2021. This was largely due to reports of the Saudi government telling allies it was not willing to prop up the price of oil with further supply cuts, and can handle a period of low prices. This is a stark contrast to the strong rally of gold prices over the period.

Outlook

Despite the gains this week, investor sentiment remains cautious due to the uncertainty on tariff and tax policy.

Although Q1 corporate earnings have shown resilience so far, with total earnings up 14 per cent from the same period last year, Wall Street analysts have begun paring back their corporate profit outlooks. Citigroup’s US Earnings Revisions Index, which measures estimated profit upgrades versus downgrades, is approaching extreme pessimism.

We are likely to see ongoing volatility in investment markets pending the arrival of more economic data and – of course – further news on President Trump’s policies. 

Our positioning in multi-asset portfolios

In portfolios where we have active discretion, we have maintained more defensive positioning, aiming to provide protection for investors in this volatile and uncertain environment.

We remain underweight equities. Meanwhile, we have structured our active fixed income positions to be less impacted by rising long-end US bond yields, by having more exposure at the five-year point of the Treasury curve.

We continue to monitor the situation to ensure the portfolios remain positioned appropriately. While cautious, we are still looking to add value where we have active discretion.

As longer-term investors, it is important to remain calm in these volatile and uncertain times. We continue to be confident that financial markets can provide the growth required by investors to meet their long-term goals.

References

1. Source of all data in this article: Bloomberg, as of May 2, 2025.

2. “State of U.S. Tariffs: April 15, 2025”, The Budget Lab at Yale, April 15, 2025.

3. FT reporters, “The 10 charts that define Donald Trump’s tumultuous first 100 days”, Financial Times, April 29, 2025.

4. Source: Deutsche Bank, as of May 2, 2025.

5. The companies mentioned are for illustrative purposes only, not intended to be an investment recommendation.

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