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Market Update: Shock and Awe

Investors are reeling from the worse-than-expected level of tariffs announced on Wednesday, further exacerbating already high levels of uncertainty.

April 2025, In the Loop

Key Insights

Tariff hikes on "Liberation Day" could push the U.S. toward recession, raising inflation risks and impacting consumer sentiment.
T. Rowe Price is reducing U.S. equity exposure due to trade policy uncertainty, seeking opportunities in global markets.
Investors face heightened volatility; long-term impacts on global order remain a concern amid ongoing trade tensions.

Investors are reeling from the worse-than-expected level of tariffs announced on Wednesday, further exacerbating already high levels of uncertainty. Either triggering negotiations or retaliations, a quick fix seems unlikely. While near-term global growth expectations worsen, the longer-term impacts on global order could be even more worrisome.

What we know

The tariff rates announced on “Liberation Day” were shockingly higher-than-expected. They included “baseline + reciprocal” levels by country. The tariff rates being implemented appear to be based entirely on the size of each country’s trade deficit with the U.S.

What we think

Should these tariff levels persist for an extended period, it is increasingly likely to lead the U.S. economy into recession with upside risk to inflation, leaving the U.S. Fed in a precarious position.
Already elevated negative consumer and business sentiment to intensify, further restraining spending and likely bleeding through to labor markets.
While looking to appease the political base by aligning to a U.S. manufacturing renaissance, we believe the tariff rates were chosen with the goal of maximizing negotiating leverage.
While downplaying near-term risk to the economy in favor of long-term gains, political pressure is likely to intensify and could influence speed of some sort of resolution.

Investment Implications

We remain cautious as near-term volatility is likely to remain elevated. We have been aiming to decrease risk through moderating equity exposures, given the unprecedented level of trade policy uncertainty.
We continue to rotate away from U.S. equities into markets outside the U.S. Should the unilateral trade war persist, the U.S. economy faces significantly more risk than the rest of the world.
As markets try to reprice this heightened level of uncertainty, we are monitoring for potential opportunities amid the dislocation.

Unchartered Tarifftory

January 2012 to March 2025

Sources: Chief Executive Group, Conference Board / Macrobond.

ADDITIONAL DISCLOSURES

Views expressed are as of 3 April 2025 unless otherwise noted.
The specific securities identified and described are for informational purposes only and do not represent recommendations.

IMPORTANT INFORMATION

This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including ﬁduciary investment advice. Prospective investors are recommended to seek independent legal, ﬁnancial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its aﬃliates receive revenue from T. Rowe Price investment products and services. Past performance is no guarantee or a reliable indicator of future results. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an oﬀer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may diﬀer from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

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202504-4376373

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