Amid rising economic uncertainties due to new tariffs announced by President Trump, investors are seeking safe assets to mitigate risks of recession and inflation. The S&P 500 has fallen 7.7% since February, with many analysts advising caution and diversification. Commodities, defensive stocks, and precious metals are gaining interest as protective measures. Concerns about U.S. protectionism potentially harming business confidence and consumer spending are prevalent, while some see opportunities in large tech firms with strong cash reserves.
Investors Seek Shelter Amid Economic Uncertainty
By Carolina Mandl and Laura Matthews
As economic risks loom larger due to the newly announced tariffs by President Donald Trump, investors are actively searching for safe havens. They are focusing on assets that can endure potential recessions and inflationary pressures, along with businesses that are less reliant on global trade.
The S&P 500 has seen a decline of 7.7% since its peak on February 19, following Trump’s inauguration for a second term. Investors anticipate further volatility as the tariffs revealed on Wednesday evening exceeded Wall Street’s expectations.
The administration introduced new “reciprocal” tariffs, starting at a minimum of 10% on all imports to the U.S., raising concerns about price increases and the potential for a global trade conflict.
In light of the uncertainty surrounding trade policies, investors are prioritizing protective measures and hedging strategies.
“We have no clear picture of where things will stand in the next three and a half years concerning tariffs,” remarks Don Calcagni, chief investment officer at Mercer Advisors. “Thus, we advise investors to remain cautious, well-diversified, and avoid taking excessive risks.”
Assets such as commodities, precious metals like gold, undervalued stocks, defensive equities, small businesses, and bonds are increasingly viewed as shields against the economic volatility tied to tariffs.
“The market movements we’ve observed reflect a flight to safety driven by the risks associated with tariffs and a potential recession. We need to take a broader view now,” states Gustaf Little, portfolio manager at Allspring.
He highlights a potential trend towards deglobalization due to tariffs, expressing particular interest in small-cap stocks that may benefit from protectionist measures, given their reduced dependence on foreign trade.
Market Reactions and Future Outlook
Robert Christian, an analyst at Franklin Templeton, indicates a preference for global macro funds that can navigate various asset types across countries or neutral equity funds that typically thrive in uncertain environments. “Companies have stocked up for the next few months, but the critical question remains: what happens next?” he wonders.
The current market is already in correction territory, and conditions could worsen. “The aggressive tariffs implemented individually are a negotiating strategy that will keep markets on edge for a significant time,” notes Adam Hetts, global head of multi-asset management at Janus Henderson Investors.
He emphasizes the surprising resilience of the Trump administration amidst market challenges, raising the significant question of how much economic pain the administration is willing to tolerate as negotiations progress.
Currently, the S&P 500 trades at approximately 20.4 times projected earnings for the next year, markedly higher than the long-term average price-to-earnings ratio of 15.8, according to data from LSEG.
Investors are increasingly worried that U.S. protectionist policies may undermine business and consumer confidence, drive inflation higher, and potentially lead the economy into a recession or even “stagflation,” characterized by stagnant growth and elevated prices.
Michael Medeiros, a strategist at Wellington Management, warns that companies uncertain about future cost pressures will struggle to make spending and hiring decisions in the near to medium term. “This uncertainty can have detrimental ripple effects throughout the economy,” he cautions.
Recession predictions were already escalating before the tariff announcement. That same week, Goldman Sachs raised the likelihood of a U.S. recession within the next year from 20% to 35%.
For Medeiros, tangible assets like precious metals could serve as a safeguard for portfolios against the recessionary impacts of tariffs and inflation.
Damian McIntyre, a portfolio manager at Federated Hermes, is focusing on defensive stocks with dividends in the event of an economic downturn. Similarly, Chris DeCarolis, senior portfolio manager at Wealth Enhancement, finds utility companies appealing in this uncertain climate. “People will continue to pay for essential services, like waste management and mobile phone bills,” he asserts.
Investors are also eyeing the global implications of tariffs and how they might shift demand for American products abroad. “These tariffs will likely encourage consumers in China and other nations to favor their own products,” comments Eric Clark, chief investment officer at Alpha Brands Portfolio Manager, noting that S&P 500 companies derive over 40% of their revenue from international markets.
This situation could challenge the narrative of “American exceptionalism,” which has traditionally attracted investment into the U.S. economy. “The pressing question is whether American exceptionalism is at risk of changing and, if so, what new leadership might emerge,” observes Olga Bitel, strategist at William Blair & Co.
Yet, some analysts see a potential opportunity. “I believe the market will stabilize, start evaluating the details, and ultimately realize that the news is, at worst, mixed,” says Jason Britton, chief investment officer at Reflection Asset Management, who is particularly interested in large tech firms with substantial cash reserves. “If they face backlash from this situation, I am ready to invest during market dips,” he explains. “The market’s reaction seems exaggerated, and I intend to capitalize on it.”