US president Donald Trump's U-turn on many tariffs has driven the latest swing in stocks, serving as another reminder as to how quickly sentiment can switch in markets.
Trump announced on Wednesday a 90-day pause on higher custom tariffs which applied to certain countries, but kept 10% baseline duties in place that came into effect last weekend for all countries. He also announced that he would be raising the rate of tariffs on China to 125%, saying that Beijing had shown a "lack of respect".
Following this pivot, US stocks staged a historic rally, with the S&P 500 (^GSPC) seeing its best day since 2008 on Wednesday. However, futures tied to the S&P 500 (ES=F) were down 1.9% on Thursday. Meanwhile, the FTSE 100 (^FTSE) jumped nearly 5% on Thursday, while the pan-European STOXX 600 (^STOXX) gained nearly 6%.
The rebound in markets signalled investor relief after stocks plunged following Trump's unveiling of global tariffs last week, with the baseline 10% levy rate coming into effect on Saturday. The market sell-off then deepened in the run-up to higher custom tariffs taking effect on Wednesday, as tensions escalated between the US and China.
After Beijing retaliated with a 34% tariff rate on US goods on Friday, Trump then added a further 50% to its already higher levies on China, taking the total new duties imposed by Washington to 104%. China then fired back by announcing 84% levies on imports of US goods on Wednesday, prompting Trump to later respond by hiking US tariffs on China to 125%.
Ian Futcher, financial planner at wealth management firm Quilter, said: "The US decision to pause reciprocal tariffs for most countries — while sharply increasing them on Chinese imports — has added a fresh layer of uncertainty to the global economic outlook."
"Markets have responded with dramatic swings, reflecting both relief at signs of pragmatism and concern over the potential for a deeper trade rift between the world’s two largest economies," he said.
"For households, the implications are wide-ranging with the prices on goods likely to rise, while broader market volatility can affect pensions, ISAs (individual savings accounts), and investment portfolios."
Given the unpredictability of developments around tariffs, there is still a great deal of uncertainty hanging over markets. So, what should investors do now?
Markets aren't 'fully healed'
Despite the tariff reprieve leading stocks to rebound, Thomas Mathews, head of markets, Asia Pacific at Capital Economics said in a note on Thursday that the market's "recovery hasn’t left it fully healed".
He said that the Capital Economics team expect Trump's pause on duties to be extended "indefinitely and tariffs on China to come down over time, presumably after a bit more negotiation."
At the same time, Mathews said that investors had arguably been set up for some near-term disappointment if this takes longer than expected but added that "ultimately we do think a deal will be done".
Beyond this near-term outlook for tariffs and the economy, he said that a "key question for markets is whether there’s been any scarring from all this turmoil and, if so, how long it might last."
"After all, even though we now have a bit more certainty about tariffs than we did before, they are still only on pause and up for negotiation," Mathews said. "Meanwhile, the administration has clearly demonstrated a willingness to make big, difficult-to-predict decisions. They’ve also arguably shown a greater tolerance for causing a recession than many might have thought. All that means that even if fears around tariffs are now subsiding, uncertainty about US policy is likely to remain high."
Indeed, Quilter's Futcher said that while it is "encouraging to see signs of diplomatic flexibility, the persistence of elevated tariffs on Chinese goods still poses risks to corporate profits and broader economic stability."
US presidentTrump announced on Wednesday a 90-day pause on higher custom tariffs. ·SAUL LOEB via Getty Images
Investing amid volatility
As shown by steep falls in markets at the beginning of the week, concerns of a tariff-induced recession prompted many investors to attempt to de-risk their portfolios by selling shares.
At the same time, data from investment platforms also showed that other investors used these falls to snap up stocks at a cheaper share price, also known as "buying the dip".
Both Hargreaves Lansdown and Interactive Investor said that they recorded the busiest days ever on their platforms in terms of trades on Monday, with more investors buying than selling shares. Interactive Investor's data showed some of the most traded investments between Thursday 3 April — the first full trading day after Trump's announcement — and market close on Monday 7 April, included tech giants Nvidia (NVDA) and Amazon (AMZN), as well as UK blue-chip stocks Rolls-Royce (RR.L) and Legal & General (LGEN.L).
Myron Jobson, senior personal finance analyst at Interactive Investor, said that the data suggested "many investors are looking past the short-term noise, viewing recent market weakness as a buying opportunity rather than a reason to retreat."
He said that market volatility can prompt a mixed response from investors. "For some, heightened turbulence might encourage a ‘wait and see’ approach, delaying ISA and pension contributions in the hope of more settled conditions," he said. "Others may view it as an opportunity to invest while prices are lower, making full use of refreshed allowances early on."
However, Jobson said that the key was to stay focused on long-term goals rather than short-term market noise.
Similarly, Alice Haine, personal finance analyst at online investment service Bestinvest by Evelyn Partners, said that investors can "run the risk of focusing too heavily on ‘timing the market’ to cash in on the investing mantra ‘buy low, sell high', and forget that the real secret is ‘time in the market’."
She explained that investing on a monthly basis, for example, takes advantage of pound-cost averaging. "With this strategy, rather than buying a lump sum at a single price point — such as during a market downturn — investors can buy smaller amounts at regular intervals no matter what the price is at the time," she said.
"This cushions the effect of any volatility in the short-term by spreading the risk over a longer timeframe. Another plus of drip-feeding money into the markets at regular intervals is that it encourages investors to stick to a regular investment pattern, helping to make their money work harder on a consistent basis."
In addition, Quilter's Futcher suggested that in periods of volatility investors should ensure their portfolios are diversified across regions and asset classes.
"Knee-jerk reactions rarely serve long-term goals," he said. "If anything, this period demonstrates why remaining invested and staying the course can often yield better outcomes than trying to time the market."
He said that this kind of geopolitical unpredictability underscored the "importance of having a resilient financial plan", which along with ensuring investments are diversified, also includes keeping an emergency fund topped up.
"While governments set trade policy, it's individuals who often absorb the shock," he said. "The best approach is to stay informed, stay flexible, and stay focused on long-term goals.”
