With or Without Exception?
Author: Kevin McCreadie
May 22, 2025
Global financial markets have rebounded from deep losses earlier this spring, but the rally remains tenuous until there is more clarity about the potential economic fallout of the U.S. administration’s chaotic trade policy, says Kevin McCreadie, CEO and Chief Investment Officer at AGF Management Limited.
What do you make of the constant ebb and flow of financial markets this spring?
U.S. President Donald Trump’s assertion that his first 100 days in office are the “most successful” of any administration in the history of the United States is a bit hard to swallow when you consider the highly volatile performance of U.S. equity markets since his inauguration. Indeed, much of the turmoil that investors have experienced so far in 2025 can be directly attributed to the Trump administration’s chaotic new trade policy.
Still, we believe it could be a lot worse if Trump’s plan to tariff the world didn’t backfire on him like it seems to have over the past few weeks. The S&P 500 Index is now more or less flat after suffering deep losses earlier this spring. Moreover, the reason for its rebound can be directly attributed to the President’s capitulating postponement of “reciprocal” tariffs for all countries that were targeted on his so-called Liberation Day in early April.
How confident are you that global equity markets can rally further from here?
There’s no question the tariff reprieve is welcome relief for investors and perhaps, in and of itself, that could be enough to potentially push equity markets higher from here. But it’s also dangerous, in my opinion, to start believing that all is back to normal.
Remember, reciprocal tariffs are only on pause until July 9 (except in the case of China, which reached its own 90-day postponement deal with the U.S. earlier this month). And while it’s certainly a possibility this pause could end up being indefinite, that’s hardly a guarantee, given how erratic Trump’s presidency has been to date.
Besides, even if the U.S. administration ends up acquiescing on a more permanent trade agreement with China and other global trading partners, that process may take months, not days, to complete, and may not immediately address the fact that tariffs remain higher than they were before Trump’s second term began—even despite the announced postponements that have equity markets seemingly back on track.
For instance, as part of its tentative rapprochement with China, the Trump administration has agreed only to reduce tariffs on Chinese goods from 145% to a still hefty 30%, and China will continue to tariff U.S. goods at 10%, down from 125% before the deal was made.
There also remains a 10% baseline tariff on imports from other countries into the U.S., as well as targeted levies such as the 25% U.S. tariff on global steel and aluminum imports.
More importantly, it’s still largely unclear how much damage these tariffs have done to the global economy, partly because their effect is expected to come with a lag and won’t show up in key economic indicators for a few months yet—which explains why the latest U.S. inflation figures continue to show prices falling on an annual basis.
What we do know, however, is that business and consumer confidence has been severely shaken by Trump’s tariffs, which, historically speaking, is usually not a very good sign of what’s ahead for the economy. We also know that many companies are so uncertain about the economic backdrop these days that they’ve suspended guidance about their future profitability for at least this quarter, if not longer.
Meanwhile, many companies—including major retailers that have significant imports from China—are warning that their pre-tariff inventories are depleting and that consumers should expect shortages on certain items and/or higher prices for goods now being shipped.
We believe, if anything, then, the rebound in global stock markets over the past few weeks seems tenuous—at least until there is more clarity on the potential economic fallout associated with tariffs that continue to remain in place. Moreover, there is still considerable uncertainty regarding potential levies on specific sectors, such as semiconductors and pharmaceuticals, that are still on the table. And what if the U.S. administration starts to feel emboldened by the recent rally in stocks and threatens to impose even more tariffs as we get closer to July 9 and the end of the 90-day reprieve? Surely, that kind of rhetoric, if ratcheted up, would be met with some level of increased market volatility, just as a weakening of markets may lead to a more conciliatory tone from the U.S. administration.
Yet, if Trump truly has capitulated—and that leads to favourable new trade agreements between the U.S. and its key trading partners—then we believe the possibility of a more sustained rally in the second half of 2025 may continue to grow more likely. Mind you, that prognosis also depends on how much economic damage has already been done, but even a severe slowdown sometime later this year could come with a silver lining for equity investors if it means a more accommodative U.S. Federal Reserve is the result.
What lasting impact could the turmoil brought on by the U.S. administration have on financial markets, regardless of what happens over the next few months?
We believe many investors are rethinking the idea of U.S. exceptionalism because of the tariffs. It’s no secret that U.S. stocks have vastly outperformed their global counterparts over the past decade or so, which has led many investors to believe a significant allocation to them (and other U.S. assets like Treasuries and the U.S. dollar) is paramount to building high-performing portfolios.
Yet, that all-in mentality may be starting to change given a growing perception that the current U.S. administration no longer provides the stability and support needed to maintain such high levels of U.S. exposure. In turn, this may explain why other global markets—including, most notably, European stock indexes—are outperforming U.S. counterparts by a wide margin so far this year.
Ultimately, it remains to be seen whether this shift in sentiment will continue longer term, but, in our opinion, it does suggest that some investors may want to reconsider the potential benefits of a more diversified portfolio now that U.S. exceptionalism is being questioned.
The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds, or investment strategies.
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About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. Our companies deliver excellence in investing in the public and private markets through three business lines: AGF Investments, AGF Capital Partners and AGF Private Wealth.
AGF brings a disciplined approach, focused on incorporating sound, responsible and sustainable corporate practices. The firm’s collective investment expertise, driven by its fundamental, quantitative and private investing capabilities, extends globally to a wide range of clients, from financial advisors and their clients to high-net worth and institutional investors including pension plans, corporate plans, sovereign wealth funds, endowments and foundations.
Headquartered in Toronto, Canada, AGF has investment operations and client servicing teams on the ground in North America and Europe. AGF serves more than 800,000 investors. AGF trades on the Toronto Stock Exchange under the symbol AGF.B.
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Written by
Kevin McCreadie, MBA, CFA®
CEO and Chief Investment Officer
AGF Management Ltd.
