Legacy's Perspective on Newly Proposed Tariffs

One way or another, the American economy will get through this period, and the trade war, like all wars, will end.  While the financial news headlines focus on just one area of the market, such as the S&P 500 Index, it is important to remember that this area only represents a fraction of Legacy’s portfolios which are globally diversified within and across asset classes. One of our key themes coming into this year was that the role of bonds, to provide portfolio ballast in times of equity market stress and generate a steady stream of income, has been reestablished. Indeed, bonds have provided the ballast needed this year with a strong positive total return.

After much anticipation, the tariff band-aid was finally ripped off Wednesday. President Trump’s tariff announcement has sent shockwaves through the stock market, leading to declines as investors recalibrate expectations. The newly proposed tariffs target the European Union, China, Japan, and others, while sparing Mexico and Canada. The size, scope, and structure of the tariffs caught the market off guard. The ‘sell now, ask questions later’ reaction function of investors has led to a sharp sell-off in global equity markets. The market’s reaction also reflects the uncertainty surrounding how companies and consumers will absorb these tariffs and the potential ripple effects on global trade relationships.  

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If we equal-weight indexes by giving each constituent company the same percentage regardless of size, it becomes obvious how much a few giant US companies are changing perceptions. What comes as a surprise to many is that on an equal-weighted basis, the total return on MSCI’s index for Europe has actually outperformed its US Index since the beginning of 2023. 

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