How to better position portfolios before the hard data changes

Markets headed lower to close the week, despite a jolt from positive trade news out of Washington last week.

Heading into Friday, the S&P 500 (-0.4%) and Nasdaq 100 (-0.2%) were both underperforming European (+0.1%) and Japanese (+0.4%) equities.

However, the S&P 500 has essentially recovered all of its losses since “Liberation Day,” while the Nasdaq 100 has gained +2.5%. Since it’s April 8 trough, the S&P 500 has managed to gain +14% and the Nasdaq is up +17%, both outperforming European (+11%) and Japanese (+11%) stocks.

Outside of the price action though, the sentiment heading into Friday was positive in the United States after President Trump announced a trade deal with the United Kingdom. Highlights of the deal include the United Kingdom lowering auto tariffs to 10% and eliminating metals duties, and the United States reducing duties on British steel, aluminum and autos. The agreement, still pending final details, also includes a tariff-free quota for British beef and plans for a digital trade deal.

This was announced before U.S. and Chinese leaders are to meet this weekend in Switzerland to discuss trade. The delegation will be led by U.S. Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer, with Vice Premier He Lifeng representing China. The talks aim to de-escalate the tariff standoff, with U.S. tariffs at 145% and Chinese retaliatory tariffs at 125%. Both nations are incentivized to reduce tariffs to prevent severing trade links. While the discussions have sparked market optimism, expectations are tempered by negotiation complexities and strategic uncertainty. We do not expect easy tariff relief.

In macro news this week, the Federal Reserve left its target interest rate policy range unchanged at 4.25%–4.5%. Chair Powell and the FOMC feel that this policy rate, which is modestly restrictive as it stands, is in a good position for the Fed to take a “wait-and-see” approach to monetary policy (more on that below).

In fixed income, yields are heading higher into the week close. The 2-year (3.87%) is higher +4 basis points (bps), while the 10-year (4.38%) climbed +7 bps.

In commodities, oil (+2.5%) looks to snap a two-week losing streak amid the improved trade war narrative, while gold (+2.6%) continues its climb.

Below we dig into the hesitation markets have faced amid uncertainty, and the actions you can take in portfolios right now.

A wait-and-see-market

While having cooled from recent peaks, economic uncertainty remains elevated. As a result, much of the impacts of uncertainty haven’t yet hit the hard data (e.g., GDP, employment rates, etc.). The economic data reported today does not include the potential tariff impacts of tomorrow. This has resulted in a slew of “wait-and-see” pockets.

In economic data

Real GDP declined -0.3% in Q1. A major caveat to the headline print was the distortion of the underlying data due to net exports detracting 4.8% from the headline figure, which is the largest-ever drag on growth from net exports. We identified that a better indicator of growth in the economy was domestic demand (consumer spending plus private fixed investment). Domestic demand added 2.5 percentage points to GDP growth, exactly in line with Q4’s GDP. Using this measure, the economy seems to be growing in line with Q4 of last year, though we expect this growth to moderate as tariffs flow through the economy. As a result, we are more likely to see the effects of demand destruction leading to weaker growth from tariffs in the data prints for Q2 through the end of the year.

From the Fed

Chair Powell noted this week that risks to the growth and inflation picture have increased as a result of tariff uncertainty and deterioration in the soft data (subjective indicators, e.g., surveys, sentiment). However, he also noted that this deterioration has not been seen in the hard data quite yet. The economy is still expanding at a solid pace, the labor market is not showing any immediate signs of distress, and inflation is only modestly above the Fed’s target. Powell and the FOMC feel that the best action for the Fed’s policy rate, which is modestly restrictive as it stands, is to leave policy where it is and make a policy change when the data is giving clearer signs to do so.

In the trade data

Trade uncertainty has dominated market dynamics this year, as the estimated effective tariff rate in the United States has risen to the highest level in 100 years. This has led businesses to take preemptive measures by increasing their imports of inputs in the first quarter of this year to get ahead of tariffs. U.S. ship imports climbed throughout Q1, and as a result, Treasury collections of customs and certain excise taxes in April increased over 60% relative to March this year.