Global Markets Bracing for Volatility Ahead of US Reciprocal Tariffs
15:12 Share

Thrivent can help you plan your finances for the people, causes, and community you love. What makes Thrivent different? Financial services and generosity programs are combined to help you build a financial roadmap for the future while also creating opportunities to give back along the way. Visit Thrivent.com to learn more. Thrivent, where money means more. There are presentations.

And then there are Canva presentations. With Canva, you can use AI to take your presentation to the next level. You can generate dynamic slides and text with a simple prompt. You can drag and drop graphics and charts from Canva's media library and add interactive elements to plus up your deck. And with collaboration tools built in, the whole team can work together better. You'll love the presentations you can easily design with Canva. Your clients and coworkers will too. Love your work with Canva presentations at canva.com.

Bloomberg Audio Studios. Podcasts. Radio. News. Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. Global equities are expected to see more volatility today on concerns over those looming U.S. reciprocal tariffs. In the States, Q1 came to a close and the S&P 500 notched up its worst quarter compared to the rest of the world since 2009.

In a moment, we'll hear from Ethan Devitt, Chief Global Market Strategist at Moneta. But we begin here in the States. Joining me now is Brad Bernstein. He is Managing Director at UBS Private Wealth Management. Brad is on the line from Philadelphia. Thank you so much for joining us. For me, Brad, what was most impressive about the price action today was the fact that

was how the market was able to rally off those session lows. I mean, the S&P had been down by around 1.7%. We close higher by six-tenths of 1%. Was this about short covering? How do you make sense of the price action today?

I think coming off of last week, and you looked at the levels that we got to this morning, I think the S&P was about a little over 10%, 10.5% off the highs. And we saw money come in today and buying come in around those levels late morning and just turn markets around. I think people are...

you know, are having trouble figuring out how to position ahead of Wednesday's Liberty Day, April 2nd. And there's a lot of risk to the upside and to the downside because the markets have been so bad coming into the announcement that

I think there's a better than 50 percent chance we'll see a rally on Wednesday or Thursday after the president's, you know, information about what what the administration is going to be doing with tariffs. So given the uncertainty that you're describing, defensive stocks were higher today. We had the S&P 500 Consumer Staples Index, one example, up about one point six percent. Do you want to continue to be defensive if you put new money to work?

We think it's a great time to be putting money to work, especially when markets are 10% from the highs. What we're recommending to our clients is to continue to be in diversified portfolios, which have held up far better than the S&P 500 has this year. Obviously, we've seen international markets outperform U.S. markets, but we actually think from here into the end of the year, U.S. markets will outperform global markets over the back half of the year.

and, you know, are more constructive for the second half of the year. Tariff policy is just one aspect of some of the policy that we're getting out of the Trump administration. The other has been related to a more efficient way of operating the government and

and a shakeup of many departments that I would include in that, the FDA. Today, we had shares in vaccine and biotech companies moving lower. That was after Peter Marks resigned. He's a key figure in overseeing the review and approval of vaccines and medications. Are you a little worried about the way in which the administration is approaching things on the regulatory side, particularly at the FDA?

We actually really like health care as a sector to be investing in. It's hard for me to speak to what the administration is doing with the FDA. I know that they're trying to look to reduce

you know, excess spending and, and, uh, abuse of, of our, of the, of the country's money. Obviously it's been controversial, obviously, um, clunky on the delivery. And I think they're learning as they go. Uh, but their goal is to try to find ways to continue to cut, uh,

obviously, regulations, but spending and wasteful spending as well. But we're actually big fans of healthcare here, focusing on longevity of that theme of people living a lot longer and wanting to look and feel healthy. What areas of the market are you avoiding right now?

We're avoiding, I would say, with gold really on fire here, I wouldn't be adding to commodities here. I'm a little concerned because when markets turn, I think what's been doing really, really well will underperform. And I think what's been doing the worst will outperform going forward when markets decide to turn.

From the sound of kind of what you're sketching out here, you don't seem to be fearing a recession. You think that the equity market is going to perform very well going forward. Is growth going to hold up to the extent that we don't have any problems? Our base case is that we avoid a recession this year. We see the U.S. economy expanding this year around 2%. It's a historical trend, right?

So we we despite all the noise and all the uncertainty right now, you know, I know some of our peers on the street have been upping the probability of a recession still low for, you know, predicting recessions is clearly very difficult as practically every economist got it wrong a couple of years ago.

around the time the Fed was raising rates 5%. But we don't see a recession this year. Do you believe that the impact of these tariffs will be inflationary? And for that reason, the Fed is going to keep rates on hold for quite some time?

We actually think we'll have two or three rate cuts this year. We do see the potential for some tariffs here being deleterious for growth. And we, this week, reduced our target on the S&P from 6,600 to 6,400. But

we still see meaningful upside from here. And no, we don't see a huge impact on inflation from what will probably end up being

the result of the tariffs. So if the Fed, if you're right, and the Fed were to lower rates by a total of 75 basis points, is that solely based on your assumption that we're going to see a lot more softness in the labor market? So we definitely think growth will slow from where it was and still be around 2% around trend. We think unemployment will keep the economy from having a recession. That being said, if we're wrong and

and unemployment and the economic data gets weaker from here, the Fed will be more aggressive on the cutting side. I think that'll help the markets. I think we really believe still that there's a Fed put in the markets. We don't see inflation going meaningfully higher from here. Brad, I'm curious as to whether you're inviting clients to look at opportunities offshore, particularly in Europe.

Well, that's been an area that's outperformed this year. I believe the European markets are up about, after the last couple of days, probably still up about 15% this year. So, we think the easy money has been made there on the back of more stimulus and

more defense spending because of our administration's position on NATO, as they made very clear. So as I mentioned earlier, we actually think from this point and from these levels, the U.S. markets for the rest of the year look more attractive than the rest of the world. We had bond prices up today, yields down across the curve. Is it too late to participate in the bond market right now? Has the good money or the easy money been made?

I don't think so. We saw a huge move on Friday. The 10-year dropped about 11 or 12 basis points on Friday. I think it finished the day probably down around four or five basis points today. Look, if economic data continues to get worse, and/or the Fed's cutting, and we think they will be,

I think yields can come down further. I know coming into this year, there was a lot of people that thought the 10-year would be over 5%. Clearly, that doesn't look like the case this year. I think it's very hard to predict. But I think if the Fed's cutting rates in the second half of the year, two or three cuts, I think you'll see the 10 under four. Brad, we'll leave it there with a 4% yield on the 10-year. Brad Bernstein is Managing Director at UBS Private Wealth Management on the line from Philadelphia here on the Daybreak Asia podcast.

Thrivent can help you plan your finances for the people, causes, and community you love. What makes Thrivent different? A combination of financial services and generosity programs. Thrivent offers advice, investments, insurance, banking, and generosity, as well as resources to fund service projects or direct dollars to causes you care about. With more than 120 years serving clients, you can plan your finances with confidence. Visit Thrivent.com to learn more. Thrivent.

where money means more. When your company has a position to fill, are you really seeing the best professional candidates? Sure, you get plenty of resumes, but you may be missing an untapped resource. Ideal candidates not currently job searching. People not actively looking, but who may be open to the right opportunity. It can be the difference between a good hire and a great hire.

Specialized Recruiting Group is ready to find the talent you need. Go to srgpros.com and see how the recruiters, with a deep understanding of the experience and expertise you need, can find the right fit for your business. After all, you deserve to see the best candidates, both active and passive. Whether you're looking for a long-term or project-based professional,

Specialized Recruiting Group is ready to find the talent you need. Go to srgpros.com right now to get started. That's srgpros.com. Specialized Recruiting Group, a tailored approach to professional hiring.

Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. Once touted by President Trump as his favorite word, tariffs remain the key driver of markets this week. For more on their potential impact, we heard from Ethan Devitt. She is the chief global market strategist at Moneta Group Investment Advisors. She spoke earlier with Bloomberg's Sherry Onn and Heidi Stroud-Watts.

Yifan, good to have you with us. I mean, how much will the Wednesday tariffs really set the tone for the markets for the next few months?

I'd say we can't really look out the next few months. I think as your previous guests have suggested, we are really pulling in our prediction factor in terms of what we can say to our clients. We are working very much in the short term. We know that the recent tariff news and noise has been very much short term. There have been reversals. I'd say there is a lot of trepidation around this Liberation Day simply because we've actually had already quite a lot of bad news to digest, the automakers being the latest round of that.

So we are working with our clients. We're digesting a very nasty first quarter in U.S. equity markets, looking at what that might mean for predictions going forward and really just looking to see what Wednesday has to bring us.

Does that mean that you're veering away from the U.S. right now? What we're doing is we're reinforcing our global allocations, which have always been in place but have been over recent years quite difficult to defend. Anything that was non-U.S. exposure was a challenge for our clients. It wasn't performing well. It was losing in terms of local currency and

it was difficult to justify when all we could talk about was American exceptionalism. We stood the course and we basically stuck to our global diversification mantra. And we're still looking for whether that should be re-underwritten. Now we're glad that we did. We actually are reinforced in our positive view on non-US equities. We are

encouraging our clients to stay the course in terms of diversification there, but also in terms of diversification across the cap spectrum. Nobody was overly concentrated in the MAG7 anyway, but now we're looking for where the pockets of value are in the mid and small cap sectors.

When you say non-U.S., are you veering more towards emerging markets, which already saw what the war saying over a month or so, given the risk of sentiment around the world, or more towards, say, Europe, where the expectation is for more rate cuts and for more spending as well?

Yes, we probably are looking more at developed markets less than emerging markets. That has been, as I mentioned, we have had to defend our non-US holdings over the last number of years. Emerging markets have been particularly hard to defend. The risk reward really was not there. And we did see the risk mounting. We very much saw the risk mounting in terms of some of the regulatory risks, some of the political risk and geopolitical uncertainty. So I would say for US investors, European investors have a slightly more

open-minded approach, I think, to emerging markets at this time. But U.S. investors have been somewhat leery of emerging markets. I don't see that changing right now, especially as you noted, they seem to be quite levered to this trade uncertainty and equally the volatility that's coursing through all global markets.

Yifin, when you talk about smaller caps and when you talk about perhaps some of those value names as well, are you concerned at all about the potential that the U.S. could actually perhaps not head into a recession but see more consumption being hit?

Definitely, that's a huge cut. Probably the biggest risk we think right now is the consumer not feeling anywhere near as optimistic as they have. And we're talking about long term and short term. Over the long term, the consumer sentiment indicator is where it was about 2022. So it's not as low as it has been in the past. But when we look at a short term indicator, that's the lowest it's been in 12 years. So looking out into the short term in terms of income, in terms of job security, the consumer is not at all sanguine. So that could be a factor across all equity markets.

What we think, though, is that SMID, and I'd say SMID more than small cap. Small cap has a lot of liquidity issues. It will have challenges from consumer demand. SMID is a little bit more insulated from global trade. So that gives it just that buffer against some of the tariff implications. It doesn't have the currency effect equally. And I would suggest that that SMID market, sort of steady state, industrial name, some of the names that could be open to M&A from the burgeoning private equity interests market,

That could all be of interest, but every sector will be exposed to the consumer. When it comes to value plays, does China factor in at all for you? I wouldn't say for our U.S. clients much at the moment. We obviously are always looking at China. And it was interesting to pick up President Trump's comment earlier that he's not concerned about China. I think forming alliances with other trading partners, I think the fact that he's not concerned doesn't mean that market commentators should not be concerned and should not be playing out the gameplay.

theory of what that might look like. I think we know certainly with looking again, say at the Panama Ports deal, that there's quite a bit of political interference and oversight occurring across the board, across all geopolitical matters and trade matters at the moment. And I'd say we need to watch that very carefully. I wouldn't say we're looking at China in terms of a value play necessarily out of the US, but European clients do and have had longer exposure to China that has looked quite interesting recently simply because it was so oversold.

And where do you stand on treasuries and the broader global bond markets, which continue to rally at this point because of these safe haven moves?

Yeah, I'd say we have not, obviously we don't expect bonds to be where our clients will see most of their growth going forward. Although in terms of cash, it's been a very nice place to park. Cash has been meaningful. Inflation numbers somewhat subdued, so the returns on cash, even in real terms, look interesting today. But we are cautious on bond markets. We've seen a lot of volatility there. We know that the interest rate movements are going to be quite divergent.

around the world. We don't know what the Fed has in store. We know they have some arsenal to stimulate the economy. We know the ECB most definitely does. So we are a bit conscious, though, that fixed income markets have not been necessarily believing the spin of central banks and have been very volatile recently. So while the income is interesting, we want to be wary of just the way that capital value moves around. Yvonne David, good to have you with us. Chief Global Market Strategist on Moneta.

Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the stories shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Krisner, and this is Bloomberg.

Wasabi Technologies is purpose-built to free businesses from skyrocketing storage costs and unpredictable egress fees from those old and top-heavy legacy providers. You know, the big guys. Wasabi is the go-to provider for professional and collegiate sports teams around the world. From Wasabi's AI-enabled Intelligent Media Storage Wasabi Air...

to the industry's only cloud storage service with triple protection against cyber criminals, Wasabi is driving innovation in data storage, all for up to 80% less than those other guys. Try them out for free at Wasabi.com. What caffeinated foodstuff is currently suffering a shortage? What company's new AI model is called QWQ32B? Prada is in talks to buy which luxury fashion brand for $1.6 billion?

Think you know the answers to these questions? If so, play Pointed at Bloomberg.com slash pointed. It's the news quiz for risk takers.