By Prof. Dr. Jan Viebig, Chief Investment Officer, ODDO BHF SE.
The magnitude of the tariff increases announced by President Trump on 2 April 2025 came as a nasty surprise. Market participants expected tariffs on goods imported to the US to be hiked from just under 3% to around 11% on average. Following Trump’s speech, it became clear that they would soar to 23%.
Trump claims – falsely – that higher tariffs will generate revenue for the US and that exporting countries will foot the bill. In fact, tariffs act like a tax on consumers in the country that imports the goods, in this case Americans. Previously, we predicted that tariff increases would cause US inflation to rise by just over 1%; we now expect that figure will be above 2%. We also expect US gross domestic product (GDP) to fall by around 1%. The probability that the US will enter a recession within the next twelve months has now risen to above 40% (source: US Federal Reserve recession model).
Most damaging for the markets, however, is the uncertainty triggered by this misguided tariff policy. Donald Trump claims to be following his gut feeling. His economic policy is similarly unpredictable, causing extreme uncertainty for companies, consumers, and investors alike. Short-term volatility in financial markets, as measured by the VIX index (Chicago Board Options Exchange Volatility Index), has temporarily risen to over 50% due to significant price losses in stocks. On Monday, the DAX temporarily lost more than 10%; other indices, such as the S&P 500, also suffered severe losses. Volatility rose to levels close to those experienced during the Covid-19 pandemic in 2020 as well as other severe shocks over the past 30 years (see chart below).
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Source: Bloomberg, period 31.03.1995–08.04.2025; Volatility indexes measure the implied volatility of an index (in this case the S&P 500) representing the market’s expectations for volatility over the coming 30 days, in real time.
Legend: Russian crisis, Internet bubble, Global financial crisis, US rating downgrade/Eurozone debt crisis, Brexit vote, Covid pandemic, US tariffs
One of Warren Buffett’s wise rules for stock investors is: “Be greedy when others are fearful and be fearful when others are greedy”. During periods of increased volatility, it can make sense not to sell one’s stocks but to buy selectively instead. According to our calculations, the stock market, as measured by the S&P 500 Index, has risen significantly more on average over a 12-month period that follows an increase of at least 30% in volatility. Our analysis shows that Buffett’s advice is sound: in times of stress and high volatility, falling stock prices can create entry opportunities for long-term investors with the right risk tolerance. This was true following both the 2008–2009 financial crisis and the COVID-19 crisis. Time will tell whether Buffet’s precept will be borne out again this time.
Trump’s economic policies have driven up systemic risk. The key question is whether his tariff increases will plunge the global economy into recession or result only in slower growth. Much will depend on whether Trump can follow through with his radical tariff increases. The world is oscillating between the EU’s approach, namely, to try to negotiate lower tariffs, and the Chinese position of forcing the US to back down by harshly counterattacking.
Higher tariffs will threaten global supply chains and drive up inflation in the US. Both these consequences would dampen economic growth. However, it would be entirely unprecedented for a US president to pursue a long-term strategy that is detrimental to American consumers and workers. On 9 April 2025, Trump suspended the new tariffs on numerous countries for 90 days, while further increasing tariffs on Chinese imports to 145%. Markets rallied following this announcement, but it is impossible to predict with any certainty what will happen in the weeks ahead. Given the current level of risk, we maintain our regional diversification. Whereas US equities make up more than 70% of the MSCI World equity index, our portfolios currently have a weighting of around 50% in US equities, roughly in line with our exposure to European equities.
Swiss stocks are also an option. The Swiss franc has often been a safe haven in turbulent times. Furthermore, the Zurich Stock Exchange is home to many interesting companies with solid growth and should benefit from a stronger Swiss franc. We know from experience that this turbulent phase in financial markets can offer opportunities, despite the risks. We intend to seize these opportunities in a targeted and disciplined manner.
