Markets staged a dramatic rebound yesterday as President Trump announced a surprise 90-day pause on newly imposed country-specific tariffs—barely days after they came into force. This new pause applies to all trading partners of the US, except China, whose tariff rate was hiked even further to 125%, reinforcing its status as the central focus of U.S. trade hostilities.
The announcement spurred the S&P 500 to its best single-day performance since October 2008. Asian and European markets followed suit overnight, and early trading in the UK also pointed to renewed optimism. However, financial experts caution that the volatility is far from over, with recession risks, both in the U.S. and globally, still looming large.
This latest move appears to be a reaction to mounting market pressure and recession fears, with Trump acknowledging input from financial leaders such as JP Morgan’s CEO and signs of strain in the bond market. While the pause offers short-term relief, it leaves uncertainty in place, as trade negotiations have not yet begun and the policy could change again quickly. And we all know how much markets dislike uncertainty!
Flip-flop undermines confidence
Marcus Brookes, Chief Investment Officer at Quilter Investors, noted the fragility of investor sentiment:
“It appears Donald Trump cares about what markets think after all. This U-turn, less than a week after the tariffs were rolled out, shows a lack of consistency in U.S. economic policy. Even with the 90-day pause, the uncertainty is damaging. Consumers and businesses can’t plan with confidence, and the risk of recession hasn’t gone away.”
Brookes added that markets may be enjoying a temporary “sugar high,” but investors should remain cautious and favour gradual, diversified investment approaches.
Relief rally, but caution remains
Michael Field, Chief Equity Strategist at Morningstar, described the pause as a “big positive,” but warned that markets were not out of the woods:
“Yes, the worst-case scenario may be off the table for now, but steep tariffs remain in place for China, and tensions are far from resolved.”
Morningstar’s Chief US Strategist Dave Sekera called the market’s rebound a mix of relief rally and short-covering activity: “It’s too early to signal an all-clear. This development supports our belief that tariffs would eventually be negotiated down, but volatility will persist throughout the negotiation process.”
Lizzy Galbraith, Political Economist at Aberdeen, cautioned that the broader impact of elevated tariff levels should not be overlooked:
“Despite the elation in financial markets after the 90-day pause on reciprocal tariffs, the average US tariff rate on the rest of the world, and especially on China, has still increased enormously. This could impart a stagflationary risk to the US economy and weigh on growth elsewhere. Recession is still a big risk—perhaps just below 50%.”
Galbraith added that in an upside scenario, tariffs could fall further as the administration responds to market signals, but warned that in a downside scenario, the pause may prove short-lived, with tariffs reinstated quickly if negotiations stall.
Timing and transparency key to market trust
Dominic Pappalardo, Morningstar’s Chief Multi-Asset Strategist, stressed the importance of timing:
“The shock to the markets came not just from the scale of tariffs, but from their immediate implementation. A more phased approach might have dampened the fallout. The new 90-day pause gives room for adjustment—and possibly compromise.”
Preston Caldwell, U.S. Economist at Morningstar, tempered market euphoria with hard data:
“Even with this pause, average U.S. tariff rates remain around 20%. China faces a 125% rate, amounting to a de facto embargo. Inflation risks remain high, and we still estimate a ~40% chance of recession.”
Regional implications and supply chain concerns
Ray Sharma-Ong, Head of Multi-Asset Investment Solutions – Southeast Asia, at Aberdeen Investments, weighed in on the risks to Asian markets saying: “Companies may struggle to react, invest, and grow meaningfully due to this sudden policy shift, with uncertainty about the form or results of deals reached within the 90-day window. This will make it difficult for the market to price in potential earnings till there is clarity on this.”
He added: “Consumers will bear the brunt of the increased net tariff rate, which will rise further after the 90-day period. This will affect demand, economic growth and inflation.”
Sharma-Ong also noted that U.S.-China tensions could intensify, with allies being pressured to align with Washington:
“Treasury Secretary Scott Bessent indicated the administration plans to reach deals with allies before approaching China as a group, signalling potential penalties for those who try to work with China independently.”
On Asia’s strategic positioning, he commented: “Our preference is to focus on regions like Japan and India within Asia, as they have not been as affected by the tariff hike, are willing to negotiate, and stand to benefit from any trade-related reallocation plans away from China.”
He added that monetary and fiscal measures from China are likely: “We expect RRR and rate cuts, PBoC bond purchases, and support for the stock market. Fiscal acceleration may follow, but new funding could be limited given recent approvals.”
Structural uncertainty remains
Jochen Stanzl, Chief Market Analyst at CMC Markets, echoed broader concerns saying: “Markets rallied on the tariff pause, but economic trust has been eroded. Universal tariffs remain in place, and the spectre of escalation hangs over trade negotiations.”
Stanzl warned that other nations could soon join China on the U.S. President’s “unfriendly list” if they resist U.S. demands.
Strategy shift driven by markets, not policy
Charu Chanana, Chief Investment Strategist at Saxo, argued that the shift was market-driven rather than a true policy pivot: “This was a recalibration, not a reversal. Trump’s decision appears reactive to pressure from financial leaders and bond market signals. He explicitly cited input from figures like JPMorgan’s Jamie Dimon, acknowledging rising recession fears.”
Chanana emphasised that the tariff pause buys time—but not resolution. Investors should expect more turbulence ahead: “The 90-day window will likely be filled with headline-driven noise, not stability. Active investors should focus on quality, remain tactical, and prepare for further shifts.”
Key takeaways for advisers
- Tariff uncertainty continues: While some relief has been granted, the overall tariff landscape remains highly unpredictable, especially regarding China.
- Market volatility likely to persist: Recession risks, political unpredictability, and lack of long-term clarity are still weighing on investor sentiment.
- Portfolio resilience is key: Financial advisers should guide clients toward high-quality assets, maintain flexibility, and avoid chasing rallies.
- fFxed income exposure needs scrutiny: Bond market volatility suggests careful consideration of duration and credit risk.
While Trump’s latest move offers a short-term reprieve, it has reinforced a perception of policy unpredictability that continues to challenge both investors and markets. For now, advisers are urged to prioritise resilience, diversification, and discipline amid a still-fragile global outlook.
