The impact of the new US tariff policy on global stock markets is a story of turmoil and unpredictability. When President Trump unveiled his plan to remake the global economy, he promised to reduce trade imbalances, restore “fairness” in trade, and bring manufacturing jobs back into the United States.
The tariffs, which include a universal import tariff and reciprocal tariffs tailored to match the duties imposed by other countries, prompted vows of retaliation from foreign governments. The effect was immediate, with global stock markets plummeting in response to the uncertainty and anticipated trade disruptions.
A recent analysis using multi-factor models has shed light on the market reactions following “Liberation Day”, the day when the US tariffs were announced. The study found that the global equity markets experienced a sharp decline, with the z-score for the Profit factor reaching a high positive value, indicating a strong “flight-to-quality” effect.
However, the impact of the pause in the 90-day tariff suspension announcement was analyzed using the MAC3 US Equity Model. This analysis revealed large positive returns to the Market and Beta factors, suggesting that investors have regained confidence in the markets.
The study also found that certain industries were disproportionately affected by the tariffs, including Consumer Electronics, Oil Exploration & Production, and Electronic Components. Conversely, sectors such as Consumer Staples and Health Care performed well, likely due to their domestic nature.
The analysis underscores the far-reaching implications of this new phase in international trade and highlights the importance of analyzing equity markets through a robust multi-factor model. With market volatility elevated, investors must remain vigilant and adapt to changing economic conditions.
Note: The article has been condensed to preserve the main points while removing unnecessary sections and formatting.
Source: https://www.bloomberg.com/professional/insights/markets/modeling-the-impact-of-tariffs-on-the-global-stock-market