Macro
The U.S. has launched an aggressive tariff regime that dwarfs the historical Smoot-Hawley tariffs in both scope and economic impact. What makes this shift even more consequential is that today’s U.S. economy is three times more integrated into global trade than it was in 1930. These new tariffs, applied unevenly across countries and products, have created a chaotic business environment in which companies are unable to make informed investment decisions. The broad application of duties, rather than focusing on specific trading partners such as China, Canada, Mexico, or Europe, has made negotiations more complex and hindered businesses from planning long-term strategies.
While the U.S. aims to rebalance global trade dynamics, critics argue that the current approach risks tarnishing the country’s global brand as a dependable economic partner. The short-term risk is uncertainty; the long-term risk is reputational. Many companies are already reassessing their U.S. exposure amid fears that the regulatory environment has become too unstable. The psychological shift among investors and executives has been notable—confidence is eroding, and investment is being postponed. The move to onshore production is also structurally inflationary, as it increases costs, reduces margins, and limits pricing power. If this transition persists, it will inevitably depress earnings and equity multiples.
China, having retaliated with tariffs of its own, now faces a 104% blanket duty on all its exports to the U.S. It has also added several U.S. companies to its export control list. Meanwhile, European tariffs on U.S. goods are already among the lowest globally, averaging just 1.7%, leaving limited room for concessions. Domestically, economic momentum tied to mega-trends like AI and infrastructure remains intact, but capex is stalling. As the U.S. shifts from a post-WWII stabiliser to a destabiliser, the power of its capitalist model persists, but increasingly on shaky ground.
Rates
Treasury markets have been highly volatile. The 10-year yield, which dropped below 4% after the initial shock of the tariff announcement, has since surged past 4.5% as markets recalibrated expectations to account for inflation risks rather than growth fears. The 30-year yield has seen an even steeper rise, reaching 4.94% – the biggest spike since 1987. This reflects investor anxiety over stagflation: slow growth coupled with rising prices. In such a scenario, inflation dominates the yield curve and prevents the Fed from acting decisively.
The Treasury market is no longer operating under the assumption of central bank omnipotence. Even as the Fed hesitates, markets are independently pricing in risk. Breakeven inflation rates have surged, and volatility in longer-dated bonds has exploded, with 45 bps intraday swings in 10Y occurring, a rarity that historically coincides with bear markets. The Treasury volatility index is now running at 2x its recent average.
There is also a rising geopolitical risk to funding stability. China holds substantial U.S. Treasuries, both directly and through European intermediaries, a structure established after the Ukraine sanctions. Should China retaliate financially, it could further unnerve bond markets. Meanwhile, the 30-year auction saw solid demand, a sign that there is still appetite for U.S. debt, but at a cost. Market participants are pricing in higher inflation and increased fiscal risk amid the administration’s aggressive trade and spending policies.
Credit
While less in focus than equities or rates, the credit markets are flashing early warning signs. The blanket application of tariffs creates uneven pricing environments and pressures corporate margins, which can spill into credit spreads. As companies face rising input costs and uncertain revenue streams, debt servicing becomes more strained. Some high-profile investors warn of impending deleveraging among large institutional players facing mark-to-market losses on their portfolios.
In the broader corporate landscape, bond investors are closely watching earnings for signs of stress. As businesses pull back on capex and delay guidance due to macro instability, the probability of credit deterioration rises. Financial institutions, particularly those with heavy corporate lending books, will be the canary in the coal mine. Already, banks are at the epicentre of equity volatility and will signal if credit risk is spreading.
Equities
Markets are reeling. The S&P 500 experienced a near 13% drop in just two days following the so-called “Liberation Day” tariffs, with the VIX spiking above 50.6, marking one of the most severe volatility episodes since 2020. A brief head-fake rally, fueled by speculation of negotiations and a 90-day tariff pause, pushed the market sharply higher, highlighting how sensitive sentiment has become to policy headlines. Tuesday even saw one of the top 10 intraday gains in S&P history. Yet these gains are typical of bear markets, often occurring amid broader downtrends.
Tech, particularly names tied to AI and semiconductors, led the rebounds, but the broader earnings outlook remains challenged. Investors have dramatically downgraded earnings estimates, and capital expenditures are being paused across industries. Businesses can’t provide guidance in this environment, and earnings from prior quarters are becoming obsolete amid this macro shift.
Market breadth has collapsed, though signs of dispersion are beginning to reappear. Valuations have compressed—from a 22x forward multiple to around 19x—yet this may still not reflect the full impact of weaker margins, higher labour costs, and a more fragile global supply chain. The trade war has also prompted China to weaponise its currency and limit access to U.S. companies, further escalating tensions.
Looking ahead, investors are questioning whether this is just a policy misstep or the beginning of a structural shift in the global economic order. The implications are profound: consumption, which accounts for two-thirds of U.S. GDP, is threatened, the capex cycle is frozen, and the global economic pie may shrink. This crisis could redefine who controls the share of future economic gains and how markets value stability and leadership.