“Investors put their tin hats on and buckled down to assess the damage to their portfolios as financial markets went into a tailspin after Donald Trump’s Liberation Day speech,” says Dan Coatsworth, investment analyst at AJ Bell.
“Stocks and shares wobbled as investors priced in a potential hit to profits across multiple sectors and geographies. Brent Crude oil fell nearly 3% on the prospect of a slowdown in global economic growth. The US dollar index fell 1.3%.
“When faced with uncertain times, investors normally form an orderly queue to load up on gold. However, even the shiny stuff fell in value as the Liberation Day gloom set in.”
Stocks in demand
“Companies with defensive qualities were on investors’ shopping lists – namely businesses whose demand should not fluctuate with changes to economic conditions. For example, we all need the services of utilities and tobacco is highly addictive meaning those hooked on nicotine are more likely to prioritise the last pennies in their wallet on such products.
“Energy transmission specialist National Grid, headache tablet seller Haleon and cigarette/vape maker British American Tobacco were among the biggest risers on the UK stock market – all defensive names.
“The UK stock market has come under a lot of criticism in recent years for being full of old economy companies and lacking technology specialists. Yet it’s days like today where the FTSE 100 shows there is still some life in the old dog, thanks to its plethora of defensive names.
“The FTSE 100 might have been in negative territory but it fell half the amount of Germany’s Dax index. In early trading the FTSE 100 was down 1.2% while the Dax fell 2.4%. Futures prices imply a 3.2% slump in the S&P 500 meaning Trump has inflicted considerable damage on the US – precisely the opposite of his game plan.
"The pharmaceutical sector cheered with joy as their products were exempt from Trump’s new tariffs. GSK and AstraZeneca were among the rare risers on the FTSE 100 as they clawed back recent losses and also fell under the category of defensive stocks now high up investors’ shopping lists.
“Diageo was another riser as investors were relieved that tariffs on goods from the UK weren’t as punishing as previously feared.”
Stocks out of favour
“There is a long list of potential losers from Trump’s tariffs, including consumer-facing companies that import goods into the US. Shoe seller Nike, discount store operator Five Below and fashion retailer Gap were among the stocks slumping in pre-market trading in the US.
“JD Sports is increasingly US-focused and was among the biggest fallers on the FTSE 100.
“Vietnam-related investment trusts slumped on the London market after Trump imposed a sky-high 46% tariff on goods coming from the Asian country into the US. That’s problematic for a lot of firms which have shifted manufacturing from China to Vietnam in recent years.
“Vietnam is a major producer of clothing, footwear, furniture and toys. Dr Martens is one of the many companies reliant on Vietnam for a lot of its products and it will now be looking hard at alternative sources.”
The bigger picture
“Economists will be tearing up their forecasts for global economic growth after Donald Trump confirmed widespread tariffs on countries selling goods to the US.
“We’re now in a game of ‘who blinks first’ as recipient governments work out their response. Do they fight back, accept defeat or do deals to lower the new tariffs? Donald Trump has his eyes wide open and has already shown he is not a pushover. That means the other players will need to think carefully about their next move. Trump has already warned that anyone retaliating faces an escalation in their tariff rate. Given this chaotic backdrop, it’s no surprise that financial markets have veered off course.
“However, the scale of the sell-off wasn’t catastrophic. It could have been a lot worse under the circumstances. It might simply be a coil that takes some time to unravel and that’s potentially a worse situation for investors as confidence could remain weak for some time. At least with a rapid and severe sell-off, investors deal with the pain and then hunt for bargains as the dust settles.”
The UK’s advantage
“The UK is a relative winner from Liberation Day given its 10% tariff rate is the lowest of the pack. This suggests that Keir Starmer’s charm offensive in recent weeks and months might have paid off to some extent. Relative to the EU’s 20% tariff, the UK is looking much stronger and there is speculation Starmer would prefer to do deals to lower the rate rather than retaliate. Scrapping the digital services tax on US tech firms is a possibility but Trump will push for everything he can get.
“Trump wants foreign companies to build factories and create jobs in the US as that would provide an economic benefit for the country and allow these businesses to avoid tariffs on goods sold in the States. Some companies will go down that route, others will look at alternatives and the UK’s position on the bottom rung of the tariff rates could play to its strengths.
“Foreign companies might be looking closely at whether the UK could play a role in their supply chain to qualify for lower tariffs. Re-routing supply chains so goods enter the UK before going on to the US is a strategy that many companies will be studying after Liberation Day. The UK would benefit economically from such a move.
“Such a strategy won’t be actioned overnight and near-term there is the prospect of supply chain disruption. It was only five years ago that supply chain woes contributed to a rapid jump in inflation, and everyone hopes that situation doesn’t once again rear its ugly head. Even without supply chain disruption, tariffs alone stand to push up prices for goods and services around the world.”
Is it the end of interest rate cuts for now?
“There is a strong chance that we see a pause in the current rate cutting cycle, particularly in the US and Europe. Central banks will be worried about rising inflation and that means rates could stay higher for longer.
“Most companies are reluctant to stomach lower profit margins so the end customer is the one who will suffer. They will have to pay higher prices and that means being more selective over what they buy. Some companies will see their sales fall because shoppers either can’t afford it, they’re delaying purchases or they’ve chosen something else.
“A pause in rate cuts is bad news for companies and consumers who are under financial pressure and struggling to pay off their debts. It is also bad news for anyone looking to get on the housing ladder and hoping mortgage rates would come down soon.”
