Tariff Day a.k.a. Liberation Day was not a good day…

My first reaction on Wednesday night (April 3rd, 2025) seeing what was going to happen was to ask “why”.

• Why was it necessary to raise tariffs to such a degree as to inflict this level of damage to those invested in the market?
• Why are we now close to having three bear markets in a six-year period (2020, 2022, and potentially now)?
• Why does the world have to operate at such extremes?
• Why can’t we just look past the next 3 months and into next year?

Then I had to remember, “why” isn’t the right question.

We needed to be asking, “what” is the best thing for us to do?

Ultimately, we have succeeded in the past by defending against market downturns. Our portfolios won in 2020 and again in 2022 as the markets declined. We steered portfolios to lose less than they could have as things developed.

And now, if your a client of Portus Wealth Advisors, you might be asking why we’ve made certain decisions…

In short, because we see the downside risk as being greater than the upside.

1. Earnings start next week and the 1^st quarter will not be a good quarter for earnings. And on the earnings call, companies are going to guide lower, potentially much lower, based on tariff uncertainty. Winston Churchill is believed to have been the first to say, “never waste a good crisis.” Companies have learned that all too well the last couple of decades.

2. Europe, China, Canada and others are likely to respond with counter measures. They’ve already started to hint at putting tariffs on services (what we export really well) among other potential retaliations. Any response there will create additional confusion and fear.

3. The economy was already slowing with 1^st quarter GDP expected to be nearly flat – and possibly negative. More uncertainty for businesses could lead to short-term layoffs and contracting consumers as a result. In essence, any potential benefit from companies moving operations will take at least several quarters whereas the negative is on the front end. In that scenario, there could be benefit but only after the pain of a recession.

4. Tax cuts could help but they are at least 4 -6 weeks away. The Senate hasn’t passed a bill and they are going to be miles away from the House version. This leads to many weeks of meetings hammering out compromises. And even then, lower taxes are NOT immediate relief unless they include stimulus money.

5. De-regulations being touted by the administration should help. But much like the onshoring of opportunities, they will take time to work through the economy. It won’t happen fast enough to offset short-term negative implications.

6. The Federal Reserve is going to try to stay away from rushing to the rescue. Inflation is still a problem and the impact from the tariffs aren’t known. They likely won’t act until the labor market is already cracking and then it’s going to take time for the rate cuts to help the economy.

What Happened?

At 4:00 p.m. ET on April 2nd, the administration held a press conference in the Rose Garden, announcing sweeping **reciprocal tariffs on imports from all 180 trading partners**. Markets initially interpreted this as a blanket 10% tariff, leading to a short-lived relief rally. The S&P 500 closed up 1% on the day, reflecting early optimism that the measures were broad but manageable.

However, further details emerged after the market close. President Trump unveiled a more complex, country-specific tariff structure, where each country’s tariff rate on U.S. goods was assessed and roughly half of that rate was reciprocated by the U.S. The effective U.S. tariff rate—which had stood at 3.3% following the March announcement—now shifts materially higher.

Breakdown of Tariff Implementation

The largest impact is on China, where the existing 20% tariff remains in place and an additional 34% has been levied, bringing the total to 54%. Once the de minimis exception** (which allows duty-free imports under a certain threshold) is removed, the effective tariff rate on Chinese goods may rise to 60%.

According to the White House fact sheet, the following categories are excluded from these new tariffs:

• Steel and aluminum (already under previous tariffs)
• Pharmaceuticals
• Energy products
• Copper and lumber
• Bullion and other minerals not readily available domestically

Mexico and Canada were notably excluded from the April 2nd announcement, likely due to existing agreements under the USMCA. Meanwhile, Latin American countries (ex-Mexico) appear relatively insulated with only the 10% baseline tariff applied, positioning the region as a modest relative beneficiary.

It’s important to note that exempted categories are not fully immune — they remain vulnerable to retaliatory tariffs from global trade partners. The U.S., as the world’s largest exporter of services, could be exposed to a secondary wave of tariffs targeting sectors like finance, technology, or intellectual property, should retaliation escalate.

Market and Economic Implications Of Tariffs

Leading into the announcement, market participants were generally pricing in a 10% average tariff rate. Post-announcement, the weighted average tariff rate (excluding exempted categories) is estimated to be ~19%.

According to Goldman Sachs, every 10 percentage-point increase in tariffs reduces S&P 500 earnings by approximately 1–2%. On China alone, the current structure could lower aggregate earnings by 3–5%, assuming no offsetting measures are taken.

Since the February 19th market peak, the S&P 500 Index is now down 13%, and the Russell 2000 Index has officially entered bear market territory (down more than 20%). The sell-off has been broad-based, led by institutional de-risking and a flight to quality. Hedge funds and systematic strategies have also contributed to the downside through momentum-driven selling.

With capital markets in flux and visibility limited, we expect further volatility until global reactions crystallize. Some countries—such as the EU and China—are expected to engage in negotiations, while others, like India, may accept the tariffs and seek bilateral trade deals. In the meantime, U.S. companies are likely to see margin pressure. Firms must choose between passing on higher input costs to consumers—risking a resurgence in inflation—or absorbing the costs, which would weigh directly on profitability.

Signals from the Bond Market

The bond market has reacted swiftly. The 10-Year U.S. Treasury yield has declined from 4.25% to 4.05% since April 1st. This move reflects either:

1. A growing belief that the Federal Reserve may need to ease policy, or

2. Rising concerns over a recessionary slowdown.

In response, several major research houses have increased their 12-month recession probability from 20% to 35%.

In Closing on Tariffs

The tariff shock has fundamentally shifted market sentiment and economic forecasts. While we see more downside risk than upside in the near term, we also believe these moments of dislocation offer important entry points for patient, long-term capital. Our focus is on risk management, selective opportunity, and staying disciplined in the face of elevated volatility.

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