Navigating market
volatility

On 3 April, President Donald Trump announced the US would place tariffs on goods imported into the US from countries around the world. Major global economies and markets had been preparing for the announcements, but the tariffs imposed on some countries were bigger than expected. As a result, sharemarkets in the US and across the world fell sharply in the days afterwards, including the Australian Stock Exchange.   

Then, on 10 April, President Trump announced a 90-day pause before the higher tariffs on goods imported from more than 75 countries would come into effect. 

Global sharemarkets including the Australian Stock Exchange rose strongly on the news, largely erasing falls in previous days.  

A tariff is a tax added to the cost of goods imported from a particular country or countries. It is paid to the government where the goods are being imported. 

Tariffs are often used to protect domestic industries by increasing the price of foreign-made competitor products, or to raise revenue.  

The cost of those items to the public will generally increase by a similar amount to the tariff.

The US tariffs are expected to slow global trade and push up the price of some things, which could cause inflation to rise.

This could result in the Reserve Bank of Australia cutting the interest rate several times this year to prevent the economy from slowing down too much.

In the short term, you may see sudden rises and falls in the performance of investments.

Short term volatility in response to political announcements and other geopolitical events is a common feature of investment markets.

While difficult to forecast, history shows us that markets do recover from disruptive influences – for example, from the Global Financial Crisis and the COVID-19 pandemic.

Since Trump’s second presidency began, uncertainty has emerged about US policy in the areas of tariffs, defence and other critical areas of government spending. 

In recent months, shares have been quite weak, particularly US technology stocks. This group of stocks was optimistically priced after two years of strong growth, and therefore most at risk of uncertainty in the US market. 

This has unsettled businesses amid concerns the US economy could slow. It has also fed into uncertainty in global investment markets, including the Australian sharemarket.  

The CFS Investment team is experienced at managing unpredictability and has been putting measures in place to reduce the impact of this increased market uncertainty for many months.

We’ve been actively positioning our portfolios to reduce the effect of these risks, as well as to take advantage of the opportunities that we see coming out of this period. 

Our focus has been on diversifying investments, moving away from very large-cap technology companies, increasing our exposure to global smaller companies, boosting our investment in emerging markets, and broadening our exposure to income paying assets like credit.   

We are monitoring the performance of European equities, which have performed better than US equities since the US election. 

We have also reallocated funds away from global fixed income to domestic fixed income and private credit, as we believe those areas offer better income stability in uncertain times.  

These shifts aim to ensure that we focus on stable cash flows and also reduce our reliance on very high-growing sectors, which may be vulnerable at times of market fluctuation.