The recent unveiling of a new U.S. tariff framework has reintroduced a wave of market volatility and sparked a broad reassessment of the economic outlook. With implications for inflation, global trade, monetary policy, and investor sentiment, this development marks a return to a more protectionist trade stance—and investors are responding accordingly.

At IEQ Capital, we are closely monitoring these shifts and assessing their potential impact on portfolio strategy in the months ahead.

A Historic Escalation in Tariff Policy

The new policy establishes a baseline 10% tariff on all U.S. imports, with higher rates applied to countries running significant trade surpluses with the United States. When combined with previously announced measures, the effective U.S. tariff rate could rise to approximately 30%—a level not seen since the 1930s.¹

Markets responded immediately. The Dow Jones Industrial Average declined by over 1,400 points, while the Nasdaq Composite fell nearly 6%—its worst daily performance in more than a year.² Large-cap technology stocks, which had recently led the market higher, were particularly affected, with notable drawdowns in companies such as Apple, Nvidia, and Amazon.

Growth, Inflation, and Renewed Uncertainty

In the days since the announcement, economists have revised their forecasts. U.S. GDP growth is now expected to slow by approximately 1% in 2025 and 1.4% in 2026, primarily due to higher consumer prices and reduced business investment.⁴ Meanwhile, the Federal Reserve Bank of Boston estimates that the tariffs could lift core PCE inflation by 1.4 to 2.2 percentage points, depending on how widely and how long the tariffs are maintained.⁵

This evolving backdrop introduces a renewed risk of stagflation—an environment characterized by slowing growth and rising inflation. While not yet the base case, the likelihood of such a scenario has increased meaningfully.⁷

A Complicated Policy Landscape

Both fiscal and monetary policymakers face difficult decisions in the weeks ahead. From a political standpoint, the administration has historically tolerated economic and market weakness before adjusting course.⁸ With volatility returning and economic indicators likely to soften, the pressure for a policy pivot may build—though timing remains uncertain.

For the Federal Reserve, the challenge is even more complex. While rate cuts might be needed to support growth, rising inflation driven by trade policy could delay such action.⁶ As a result, investors may face an extended period of policy ambiguity, in which both market volatility and economic data are closely scrutinized for forward signals.

Markets Reprice Risk

The sharp decline in equities reflects not only immediate concerns, but also a re-rating of earnings expectations and valuations. As of this writing, the S&P 500 ETF (SPY) has declined nearly 4%, while the Nasdaq-tracking QQQ is down over 4.5% on the day of the announcement.²

Markets now appear poised to retest lower levels on the S&P 500 Index, until such time as more supportive technical and valuation levels are reached.¹⁰ Should economic weakness intensify, historical data suggests that equity markets may see a median peak-to-trough drawdown of 24% in recessionary periods, though the absence of systemic financial stress could limit the depth of any downturn.¹¹

If a recession is ultimately avoided, market corrections of this magnitude have historically produced attractive forward return profiles over the subsequent 12 months.¹² Therefore while perceived risk has increased, we believe investors should be open-minded to a wide range of possible outcomes, both to the downside and upside.

Implications for Portfolios

The current market environment reinforces the importance of portfolio resilience. Fixed income markets will be particularly important to watch in coming weeks. If Treasury yields fall in response to growth concerns, bonds may serve as a useful hedge. However, if yields rise on inflation fears, the diversification benefits may be limited.¹³

Credit spreads remain a key indicator of recession risk. Thus far, spreads in high-yield and real estate-sensitive sectors have remained contained, but we are monitoring for signs of deterioration that could signal broader economic stress.

We also believe that certain private investments, with historically lower correlations to public stocks and bonds, may afford an additional layer of diversification where appropriate in portfolios. 

At IEQ Capital, we continue to believe that disciplined asset allocation and long-term thinking are the best responses to uncertainty. While the tariff announcement introduces real risks, it may also create opportunities—particularly if markets overshoot on the downside or policy clarity emerges later this year.

We recommend reviewing portfolio positioning to ensure alignment with your goals and tolerance for volatility. Dollar-cost averaging into equity markets during drawdowns, selectively adding to high-quality fixed income, and maintaining liquidity flexibility remain core elements of our current approach.

We will continue to monitor these developments and communicate proactively. As always, your IEQ Capital team is available to provide insight, perspective, and guidance tailored to your needs.

 

  1. The Wall Street Journal, “New Tariff Proposal Could Push U.S. Trade Policy to Highest Protection Levels in a Century,” April 2025.
  2. Bloomberg, “S&P 500, Nasdaq Slide After Tariff News Roils Markets,” April 2025.
  3. Barron’s, “Trump’s Tariffs Raise Stagflation Risks, Say Economists,” April 2025.
  4. Federal Reserve Bank of Boston, “The Impact of Tariffs on Inflation,” April 2025.
  5. Barron’s, “The Fed’s Policy Dilemma: Caught Between Growth and Inflation,” April 2025.
  6. BlackRock Investment Institute, “Stagflation Risk Tracker,” April 2025.
  7. Strategas Research Partners, “Historical Playbook for Trade-Driven Market Declines,” April 2025.
  8. Morgan Stanley, “Technical Levels to Watch: Tariff Volatility Edition,” April 2025.
  9. Evercore ISI, “What a Mild Recession Might Look Like,” April 2025.
  10. 10. Ned Davis Research, “Market Corrections Without Recessions: A Quantitative Review,” April 2025.
  11. CreditSights, “High-Yield and Real Estate Credit Spreads: Next Shoe