Trump 2.0: Volatility and Economic Growth Under Pressure

• The first 100 days of Trump’s presidency have reignited market volatility, fuelled by unexpected protectionist announcements.
• The market rebound, supported by strong corporate earnings, remains fragile in an uncertain global environment.
  
• The Federal Reserve maintains a cautious stance, with inflation stabilising and the economy showing signs of slowing.

The first hundred days of Donald Trump's presidency have been marked by a level of political and economic instability rarely seen at this stage of a U.S. administration. One of the key turning points came on April 2, the so-called "Day of Liberation," with the announcement of new tariffs aimed at reducing the United States' structural trade deficit with its foreign partners. This decidedly protectionist turn reignited tensions in the financial markets and triggered a sharp rise in volatility. Faced with measures whose impact on global trade and economic growth remains uncertain, investors are struggling to adjust their expectations, especially as Washington's policy direction seems to shift almost on a daily basis. After one hundred days in office, Donald Trump has a record low approval rating for a newly elected president: 53% of Americans disapprove of his performance, compared to 44% who approve, according to the New York Times polling average. This climate of distrust has deepened over the weeks as the president has multiplied his unilateral decisions. He has already signed 140 executive orders, an unprecedented number since the creation of the Federal Register in the 1930s.

Financial markets have reacted sharply to recent events. The U.S. market, already unsettled at the start of the year, extended its correction following the "Liberation Day" announcements, despite still-solid economic fundamentals. However, policy reversals by the White House helped to limit the damage. The S&P 500 ended April down 0.68%, while the Nasdaq, home to many technology stocks, rose 0.88%. Notably, however, the Nasdaq is still down nearly 10% year-to-date.

In Europe, equity markets held up better in the second half of the month. The Euro Stoxx index posted a slight decline of 0.5% but remains up 6.5% since January. The German DAX stood out in April with a gain of 1.5%. By contrast, the Swiss SMI index struggled, falling 2.5%. Uncertainty over U.S. tariff policy, particularly in the pharmaceutical sector, weighed on the index's major components: Roche and Novartis fell 7.3% and 4.1% respectively, over the month.

Emerging markets reacted in different ways to the announcements from Washington. China, at the forefront of the trade war with the United States, was particularly hard hit, with the Hang Seng Index falling 4% in April. In contrast, Latin American countries, which are less directly exposed, showed greater resilience. Brazil's Bovespa index stood out with a remarkable gain of 3.7% over the month. The fixed income markets performed surprisingly well during this period of heightened volatility. The decoupling of sovereign yield curves from equity markets worked effectively in April, providing a buffer for diversified portfolios. Credit segments, including high yield, also showed remarkable resilience, allowing credit exposures to end the month in positive territory.

Source: Bloomberg / Banque Heritage

Gold continued to play its safe-haven role in this uncertain environment, closing April up 5.3%. Oil, on the other hand, suffered from growing concerns about global growth, with the price of WTI crude falling 18% over the month. Finally, the US dollar continued its decline, losing over 4% against the euro and 6.5% against the Swiss franc.

President Trump’s repeated U-turns have revealed that, despite everything, there are limits to a purely transactional approach to government. Both equity markets and U.S. yield curves have the capacity to influence political decision-making. While current market volatility appears to be at levels significantly higher than in recent years, investors are becoming more adept at filtering out political noise and focusing on fundamental data. These fundamentals continue to guide rational investment decisions and have supported the market's recent rebound. In fact, in the first quarter of 2025, nearly 76% of S&P 500 companies reported earnings above expectations, largely due to strong performances in the technology and healthcare sectors. Microsoft (+13% revenue, +18% net income) and Apple ($124.3 billion in revenue, +4%), driven by their cloud and services businesses, were key contributors.

The defensive appeal of the healthcare sector has been bolstered by positive earnings surprises. Conversely, the renewable energy sector experienced a decline in U.S. climate commitments. Tesla, for instance, experienced a 46% decrease in sales in Germany, leading to a significant decline in its operating margin to 2%. Despite ongoing weakness in commodities and consumer-linked sectors, the earnings momentum of large-cap companies helped major equity indices stage a sharp V-shaped rebound in recent days following the steep correction in early April.

On the macroeconomic front, uncertainties surrounding the implementation of U.S. tariffs and immigration policy continue to exert downward pressure on the US economy, affecting inflation, employment, and growth. Recent economic data indicate that the economy remains robust and resilient, though signs of a slowdown are emerging. In the first quarter of 2025 GDP contracted by 0.3%, following a 2.4% expansion in the fourth quarter of 2024. However, this decline should be viewed with caution, as it was largely driven by a surge in imports ahead of the anticipated implementation of new tariffs. A clearer picture of the underlying trend will likely emerge with the second-quarter figures.

Source: Bloomberg / Banque Heritage

Regarding the employment sector, the labour market continues to demonstrate strength. The unemployment rate has remained consistent at 4.2%, and the private sector has consistently generated over 140,000 new jobs per month since the beginning of the year. However, there are early indications of a slight deceleration compared to the growth observed in 2024.

While inflation remains high, recent data indicate a stabilization in the overall economic climate. In March, the Consumer Price Index (CPI) decreased by 0.1%, bringing the 12-month inflation rate down to 2.4% from 2.8% in February. However, the impact of the current tariff policies being negotiated between the United States and its global trading partners remains difficult to assess. This very uncertainty prompted the Federal Reserve to adopt a cautious stance by leaving interest rates unchanged at last week's meeting. In his remarks, Fed Chair Jerome Powell highlighted growing risks to both inflation and employment, thereby justifying the central bank's current "wait and see" approach.

The recent improvement in economic fundamentals and the easing of certain geopolitical risks, notably in the United States and between Russia and Ukraine, have allowed equity markets to rebound in recent days. However, it is important to exercise caution. The global environment remains characterized by significant uncertainty, including slowing economic growth, the Federal Reserve's persistently restrictive monetary policy, ongoing political instability in the U.S., and rising tensions between India and Pakistan. A prudent approach is warranted by these factors, and they do not support a significant reallocation of assets toward riskier investments.

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