Our positioning: Caution still advised

Financial markets initially suffered significant losses on the back of the threat of punitive tariffs. However, last month saw a countermove as reciprocal tariffs were unexpectedly suspended for 90 days. The recovery was particularly marked in Europe, with European stock markets now trading close to their highs and clearly in positive territory for the year as a whole. The stock markets in the USA also recovered, though to a lesser extent. The global recovery was fuelled by hopes of an easing of tensions in the trade conflict with the United States.

Higher import tariffs despite progress in the trade dispute

Recently, the US government has signalled initial progress in trade negotiations. An agreement with the UK was announced, and initial talks also took place between the USA and China. However, the details currently available suggest that these developments can hardly be considered a resounding success in comparison with the punitive tariffs. While the UK was able to achieve a reduction in tariffs on car and steel exports, the country still faces punitive tariffs of around 10 percent. There was also some rapprochement between the USA and China, with each side agreeing to reduce their respective tariffs by 115 percent. Nevertheless, tariffs of 30 percent on Chinese exports and 10 percent on US goods remain in place. Despite the progress made in the negotiations, import tariffs are, in turn, likely to be significantly higher overall than before President Trump took office.

Persistent scepticism towards the US stock market

Import tariffs and uncertainty surrounding the trade dispute continue to weigh on the US’s economic prospects. The general environment continues to be one of heightened uncertainty even though the new trade agreements mean that people’s worst fears are unlikely to materialize. Combined with already subdued consumer confidence, the picture for the US economy looks gloomy. First-quarter US economic growth figures show that private consumption has already lost momentum. The contribution from consumption has halved compared to the previous quarters, although consumers facing the threat of increased tariffs are likely to have brought purchases forward. For many companies, import tariffs are also set to weigh on margins in the coming months. Against this backdrop, the recent recovery on the US stock markets doesn’t look sustainable.

Preference for value stocks

The increased import tariffs also threaten to push US inflation higher again. Following May’s monetary policy meeting, chair of the US Federal Reserve Jerome Powell also acknowledged that the risks of a renewed rise in inflation have risen. It means monetary policy is likely to remain restrictive for some time to come, and hopes of support in the near future have receded somewhat. We are therefore continuing to focus on less interest-sensitive value stocks and are underweighting the US market. Besides our cautious positioning, we’re also maintaining our overweight position in the Japanese yen and continue to prefer listed Swiss real estate funds, which are less affected by the trade conflict.

Performance of asset classes

Our positioning – Swiss focus