Investment Strategy
The Trade War & Rally: 6 reality checks in 6 months
Key takeaways:
- Six months post-"Liberation Day," trade risks remain as U.S.–China tensions re-emerge, yet markets have refocused on fundamentals.
- Despite volatility and a near-bear market, a global “everything” rally took shape from the lows, while cash lags.
- Political uncertainty—from a U.S. shutdown, gridlock in France and Japan, to geopolitical flashpoints—combined with a slowing labour market and tariff-driven inflation, demands a balance of risk and resilience.
- The good news: The U.S. economy remains solid; companies are adapting rapidly, capital spending is booming, and Fed rate cuts loom.
- The key takeaway: agility is essential for building portfolio resilience in a constantly evolving landscape.
Six months ago, President Trump's "Liberation Day" tariffs escalated U.S. duties from 2.5% to 25% overnight – the largest import tax hike in modern history and a gut punch to global supply chains. Economies braced, “recession” dominated headlines, and investors panicked.
Yet only a week later, stocks hit their lows and began a swift rebound. Since then, a global 60/40 portfolio has surged close to 20%,1 with record-high stock markets worldwide – fuelled by strong earnings, AI and security spending, and the promise of Fed rate cuts.
Friday, however, reminded us that risks remain. Trade tensions reignited between the U.S. and China, and political instability continued – a nearly two-week U.S. government shutdown, gridlock in France as Prime Minister Lecornu returned after a week-long resignation, and Japan’s coalition crumbling under Takaichi’s new leadership. Meanwhile, geopolitical conundrums persist, with Hamas releasing Israeli hostages amid peace talks and the war in Ukraine dragging on.
These six months have shown that markets can turn panic into resilience by refocusing on fundamentals. Already this week, President Trump is signalling openness to a potential trade deal with China.
Below, we break down six ways the six months since Liberation Day have defied expectations and reshaped the outlook.
1. Tariffs promised decisive change—but delivered confusion
Since Liberation Day, we've seen a messy mix of rule changes, carve-outs and legal battles – there have been 26 tariff actions this year (per the Congressional Research Service’s tally) and at least eight federal lawsuits (with two now at the Supreme Court).
To add fuel to the fire, China cracked down on rare earth exports last week by requiring a licence for any product containing over 0.1% Chinese rare earths, or made with equipment using them – a move aimed at military and semiconductor production. In retaliation, Trump threatened raising tariffs on Chinese goods by an additional 100% (on top of the 30% today) and enforcing tougher restrictions on U.S. chip-design software. But with these measures earmarked for November, there's still time for negotiations.
The trade battle's economic hit has also fallen short of the headline numbers – even as Yale’s Budget Lab estimates implemented tariffs have fetched an extra $88 billion in customs revenue through August, about 60% of the $146 billion collected so far in 2025.2 Though “official” tariffs average 18% on paper, companies are “effectively” paying only about 11% – due to exemptions, timing lags and workarounds. As enforcement ramps up, that gap is expected to narrow.
2. Major policy called for fast action—but Washington shut down
Partisan battles have led to a 13‑day (and counting) government shutdown. Markets haven’t been too concerned – tracking with history – but every week is estimated to slash 0.1–0.2 percentage points off quarterly U.S. GDP. The good news is that the impact usually reverses once funding resumes and furloughed workers (40% of the federal workforce) generally get back pay.
The bigger headache is missing data. At least seven key U.S. economic reports, including non‑farm payrolls, have been missed, and this week’s CPI report will also be delayed (now set for 24 October). To fill the gap, economists are leaning on private‑sector indicators like the ADP National Employment Report and jobless claims.
While the Fed won’t be completely in the dark for the next policy meeting on 29 October, missing data and the U.S.-China trade quagmire leaves their view murkier than otherwise. Still, markets expect two more Fed cuts this year – one at each remaining meeting – consistent with the latest dot plot.
3. Recession fears surged—but the economy held steady
Liberation Day supercharged recession fears – downturn odds doubled to 40%, over 80% of U.S. CEOs braced for one, and more than 70% of S&P 500 companies flagged "tariffs" in earnings calls.
On one hand, hiring has slowed – U.S. employers have said they plan to add about 205,000 jobs so far in 2025, a 58% drop over last year and the lowest since 2009, according to Challenger. On the other hand, tariff‑driven inflation has been far less severe than feared, and strong corporate balance sheets have kept major layoffs at bay.
Meanwhile, AI and automation are reshaping growth: tech‑driven companies now account for roughly 50% of the S&P 500’s market cap, while capital spending drove nearly half of U.S. GDP growth in H1 2025 – a shift away from a consumption‑led expansion.
So, while markets remain cautious, the U.S. economy’s underlying strength also should not be overlooked. The slowing labour market and tariff pressures should be taken in balance with solid fundamentals, robust capital spending and the potential for rate cuts.
4. Uncertainty intensified—but firms adapted fast
Despite rattling corporate confidence, companies haven’t stood still.
Strong balance sheets and healthy margins have enabled businesses to adapt – diversifying supply chains, near‑shoring, adjusting pricing and investing in tech to manage costs. Q2 net margins held strong at 12.3% (just a notch below Q1’s 12.7% and above the five‑year average), and Q3 is on track for its ninth straight quarter of earnings growth – the best run since 2018 – with big banks set to report this week.
About 60% of U.S. businesses have said they are considering reshoring production, according to a recent KPMG survey of 300 executives.3 While only about one in ten have started, the White House’s own tracker is already brimming with major manufacturing pledges – from Apple and Nvidia to Ford, General Motors, Bristol Meyers Squibb and Biogen.4
Most of those plans are still on paper – and include some earlier commitments – but the rapid shift shows how quickly U.S. companies can pivot under pressure.
5. Markets braced for a bear market—but the bull run raged on
For a moment, it looked like the bull market was over – major indexes fell nearly 20% in the week after Liberation Day. But momentum flipped, and the S&P 500 has surged over 30% from its lows, marking one of the strongest six‑month rallies since 1950 and nearly doubling the gains of the bull market that began three years ago.
The S&P 500 could be close to doubling again
# years for S&P 500 bull markets to double, ranked since 1950
Source: Bloomberg Finance L.P. Data as of October 8, 2025. Bull market start dates are marked by the previous trough. The date range shown reflects the period from that trough to when the index doubled in value.
History suggests more upside ahead, even if volatility brings pullbacks along the way. Postwar bull markets have lasted about five years, sometimes longer, and the usual disruptors – like sharp policy tightening or a recession – have not emerged.
Also, consider the calm since the turnaround: before Friday's sell‑off, the S&P 500 notched 119 straight trading days without a 2% drop. The VIX has fallen back to historic lows, Treasury yields have steadied, and stocks are bouncing higher on Monday following Trump’s more tempered trade tone. Rather than buckling under pressure, markets have shown an adeptness at regaining their footing.
6. ‘Sell America,’ they said—but everything rallied anyway
Uncertainty initially sent the dollar, U.S. stocks and Treasuries tumbling in tandem – a rare trifecta that ignited fears of US exceptionalism’s end. But within weeks, a global “everything rally” took shape.
The ‘everything rally’ — except cash
Year-to-date total return, %
Source: Bloomberg Finance L.P. Data as of October 10, 2025. Note: Gold represented by the XAU/USD spot exchange rate. Global Aggregate Bonds represented by the Bloomberg Global Aggregate Index. Treasury bills represented by the Bloomberg US Treasury Bill Index. Past performance is no guarantee of future results. It is not possible to invest directly in an index.
The S&P 500 is up about 12% this year – even after a 19% plunge and full recovery – roughly in line with the average calendar year. U.S.-listed ETFs have drawn in $950 billion so far, including a record $150 billion in September,5,6,7 putting annual flows on track to top $1 trillion for the first time.8
The rally has been global. European ETFs have drawn roughly $220 billion year‑to‑date, 9 and nearly 80% of the 60 global stock markets we track are up at least 10% – the strongest breadth since 2009. Emerging markets are leading: after Greece (67%), Colombia (63%), Korea (62%), Peru (58%), and South Africa (46%) are the year’s top performers (in local currency).10
Gold, too, has nearly doubled since early 2024, hitting a record $4,000/oz and logging its seventh straight weekly gain.
It’s been one of the broadest and strongest global rallies in over a decade.
What it means for you
While tariffs have not delivered a clean reset of global trade, they have undeniably reshaped its dynamics – introducing new complexity but also opening unexpected opportunities.
The past six months have been defined by rapid adaptation. Companies have restructured supply chains, embraced innovation and navigated disruptions in new ways, with markets anchoring themselves on solid fundamentals despite the volatility.
The takeaway is not certainty – it’s agility. That’s why we’re focused on portfolio resilience: being prepared for a range of outcomes in a world where the rules are still being rewritten.
1 A global 60/40 stock bond portfolio refers to 60% equities (represented by Bloomberg Developed Markets Large & Mid Cap Total Return Index) and 40% fixed income (represented by Bloomberg Global Aggregate Index)
2 Budget Lab, Yale University. "Short-Run Effects: 2025 Tariffs So Far." September 2025.
3 KPMG. "KPMG LLP Survey: U.S. Businesses Grapple with Tariff Fallout Six Months In." October 2025.
4 The White House. "Trump Effect: A Running List of New U.S. Investment in President Trump’s Second Term." August 2025.
5 State Street Global Advisors. "US-Listed ETF Flash Flows: Into the Big Innings." September 2025.
6 Morningstar. "Gold ETFs Capture Record $9 Billion in Fresh Capital in September." October 2025.
7 FactSet. “U.S. ETF Monthly Summary: September 2025 Results.” October 2025.
8 State Street Global Advisors. “Stretch run for ETF flows and the market.” October 2025.
9 Vanguard. "No August lull as healthy ETF flows continue." September 2025.
10 MSCI. October 2025.
KEY RISKS
All market and economic data as of October 2025 and sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.
We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.
- Past performance is not indicative of future results. You may not invest directly in an index.
- The prices and rates of return are indicative, as they may vary over time based on market conditions.
- Additional risk considerations exist for all strategies.
- The information provided herein is not intended as a recommendation of or an offer or solicitation to purchase or sell any investment product or service.
- Opinions expressed herein may differ from the opinions expressed by other areas of J.P. Morgan. This material should not be regarded as investment research or a J.P. Morgan investment research report.
- All companies referenced are shown for illustrative purposes only and are not intended as a recommendation or endorsement by J.P. Morgan in this context.
- Investments in commodities may have greater volatility than investments in traditional securities. The value of commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Investing in commodities creates an opportunity for increased return but, at the same time, creates the possibility for greater loss.
Important Information
Recession fears multiplied in the wake of tariffs, but businesses and markets adapted. We break down what happened.
Madison Faller
Global Investment Strategist
Federico Cuevas
Global Investment Strategist
Published Oct 13, 2025
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