From Tariffs to TACO - Q2 2025 Market Recap

On April 2nd, the now infamous ‘Liberation Day’, the US announced sweeping tariffs that were far more severe than anticipated. The inclusion of the uninhabited Heard and McDonald Islands raised some eyebrows but was a clear indication that nowhere was exempt as Donald Trump aimed to reset US trade with the world.

Stock markets tumbled off the back of the announcement, with the MSCI USA Index falling over 12% in the days that followed. The US bond market also reacted strongly, causing borrowing costs for the US government to rise. This was a key factor in the Trump administration's decision to back down on April 9th, pausing the most severe tariffs for 90 days. After the pause was announced, the markets rallied strongly, recovering much of the earlier losses.

While Trump continued to threaten large tariffs across various countries and industries, few were implemented. This led to the unflattering acronym TACO – ‘Trump Always Chickens Out’. Consequently, markets began to disregard further tariff announcements. Even a public dispute between Donald Trump and Elon Musk did not deter the upward trend, with the MSCI USA Index gaining 11.25% in dollar terms from the start of April to the end of June.

However, as the Federal Reserve resisted direct calls from Donald Trump to lower interest rates and the "Big Beautiful Bill" potentially added trillions to the US budget deficit, the dollar weakened significantly. As a result, the US market was up less than 5% for sterling-based investors.

Other major equity regions were up between 4-6% for the quarter in sterling terms. After a shaky start, investors were rewarded for staying invested through the volatility. Both government and corporate bonds were also positive, and gold continued to climb due to geopolitical uncertainty, leading to a positive quarter for multi-asset investors.

While the tariff pause has been a reprieve, uncertainty around global trade and Donald Trump's ‘America First’ agenda persists. Although markets have proven resilient in the face of this ever-changing outlook, volatility has been high. A well-diversified portfolio is likely the most sensible approach in these conditions.