Where Will the Market Go from Here?

This story is continuing to develop. After this piece was written on 4/9/2025, President Trump announced that he has authorized a 90-day pause, lowered reciprocal tariffs to 10% during this period, and increased tariffs on China to 125% effective immediately.

One widely accepted notion is that introducing tariffs is harmful to the economy. This view seems validated by the sharp equity market sell-off over the past week—a sentiment likely noticed by President Trump. However, it’s unreasonable to conclude that the new administration intends to damage the economy. Instead, Trump likely views tariffs as leverage to negotiate better trade deals with our partners rather than pursuing tariffs to their full extent.

The market appears hopeful for such deals. On Monday, when media outlets misinterpreted a statement by National Economic Council Director Kevin Hassett as signaling a 90-day pause on tariffs, markets rallied. Similarly, optimism surrounding trade negotiations with South Korea and others fueled gains on Tuesday. Yet both times, markets were disappointed—first when the pause was debunked and later when reports of escalating tariffs on Chinese imports emerged. We should conclude from these events that the market wants to find a reason to rally.

However, the equity market remains uncertain about Trump’s objectives. Speculations range from reducing trade deficits to reshoring manufacturing, but much of the impact hinges on Trump’s internal strategy, which he hasn’t clearly articulated. This lack of clarity suggests that Trump may be aiming for a deal.

A recent moment during Ukrainian President Zelensky’s visit to the White House offers some insight into Trump’s approach. In a tense exchange, Trump told Zelensky, “You don’t have the cards,” implying that power dynamics dictate strategy. Similarly, Trump likely believes the U.S. holds strong cards in trade negotiations—enough to secure deals that alleviate market pressures and ultimately spark a rally.

Why isn’t the market interpreting it this way? Ambiguity creates uncertainty, compounded by the risk that Trump could miscalculate or overplay his hand. For instance, China might refuse to back down, or the resolution could be delayed longer than anticipated. These uncertainties weigh heavily on investor sentiment.

Still, many of these worst-case scenarios remain hypothetical. The market has already priced in much of this fear, leading investors to experience the emotional toll of imagined economic pain through real losses in wealth.

These realities bring us to several conclusions. The probability of adverse economic and market outcomes has risen—perhaps to around 35%. Although a significant number, this still leaves a 65% likelihood of favorable outcomes driven either by forced circuit breakers (due to waning U.S. constituent support) or successful trade deals. If positive developments occur, there’s meaningful upside potential from current levels. While there’s no guarantee that markets have found a bottom, this potential return asymmetry favors investors who maintain their equity exposure. Nevertheless, if downside risks materialize, it’s important to remember that markets have already priced in much of this pain and our time-based portfolios provide at least five years of cash flows to help our clients weather the storm.

As always, our investment team is closely monitoring the markets and events. If you have specific questions about your portfolio, please contact your Blue Trust financial advisor. If you do not have a Blue Trust advisor and are interested in speaking with one, please reach out to info@bluetrust.com or call 800.841.0362.