Quarterly Market Currents: Tariffs, Tumult, and Tax Alpha
We typically use this space to highlight a range of themes across asset classes—surfacing market trends, sharing insights on impact, and offering perspective on what we’re watching across portfolios. But this moment demands a different approach.
What do we mean?
Over just a few weeks, the Trump administration has recalibrated the trade war playbook with surprising speed and scope. A sweeping tariff announcement at the start of April sent shockwaves through global markets, contributing to a surge in volatility not seen since early pandemic-era disruptions. While market participants began the year focused on interest rates, inflation, and corporate earnings, the conversation has now shifted decisively toward trade policy and geopolitical risk.
Rather than covering our usual mix of themes, this quarter’s commentary zeroes in on what we believe is the most consequential driver of short-term market behavior: Donald Trump’s disjointed tariff rollout and the resultant uncertainty looming over markets. We walk through what’s happened, how markets are reacting, and—most importantly—where we are focusing as trade policy dynamically evolves into the second quarter.
Tariffs, a Tool for Equity Market Chaos
Markets initially surged following Donald Trump’s November 2024 election win, buoyed by expectations of a pro-business agenda focused on deregulation and tax cuts. However, that optimism quickly eroded. Since taking office, Trump has rolled out policies — most notably his abrupt “Liberation Day” tariff announcement— that have introduced sharp volatility and undermined investor confidence. The erratic cadence and sweeping scope of these announcements have rattled markets, raising concerns about policy credibility and the long-term economic toll of escalating trade tensions. Below is a brief timeline of key developments:
April 2, 2025 – Market sentiment turned quickly as Trump declared “Liberation Day,” unveiling a 10% blanket tariff on most imports (excluding Canada and Mexico), effective April 5. He also announced aggressive “reciprocal” tariffs of up to 54% on goods from over 60 countries, set to begin April 9, 2025.
April 3–4, 2025 – Global markets recoiled. The Dow fell over 4,000 points in two trading days, and the S&P 500 entered correction territory. China retaliated swiftly, enacting a 34% tariff on U.S. imports and intensifying fears of a trade war.
April 9, 2025 – Just hours after the reciprocal tariffs went live, Trump reversed course, pausing them for all countries except China. At the same time, the tariff rate on Chinese imports was hiked to a staggering 145%. Markets staged a dramatic rebound, with the S&P 500 gaining nearly 10% in a single session.
April 13, 2025 – The reprieve was short-lived. Commerce Secretary Howard Lutnick announced a new round of tariffs targeting previously exempted technology products, including smartphones and computers—reigniting fears of prolonged economic disruption.
While the torrid pace and unpredictability of recent policy announcements have been extraordinary, we expect further developments from both markets and the Trump administration in the days ahead. In the face of this uncertainty, our focus remains clear: we will continue to monitor events closely, communicate transparently, and adjust portfolios thoughtfully with a long-term, risk-aware perspective. Periods like these reinforce why we prioritize diversification, discipline, and clarity of purpose in portfolios we manage—so that short-term volatility becomes background noise to our pursuit of generational goals.
Checking in on Fixed Income Markets
Amid the tariff turmoil and media focus on equity market swings, meaningful developments in fixed income have flown under the radar. Most notably, U.S. high-yield credit spreads have swiftly widened to their highest levels since May 2023—an important signal of growing caution in credit markets. At the same time, investor behavior suggests waning confidence in U.S. Treasuries as the safe-haven asset of choice. These shifts are quietly reshaping the opportunity set within fixed income, even as headlines remain fixated on stock volatility.
Credit spreads are a key gauge of market sentiment relative to default risk and economic health. When fundamentals appear strong, spreads narrow and investors demand less risk premium for holding lower-rated bonds. But as concern rises—driven by factors like policy shocks, economic slowdown, or geopolitical tension—spreads widen quickly as capital moves out of riskier credit. That’s exactly what we’re seeing now, with high-yield spreads recently pushing past 450 basis points. While unsettling at first glance, this repricing can create compelling entry points. A diversified, selective approach to high-yield—anchored in fundamental credit quality—can allow investors to capitalize on rising yields while managing downside risk in a more uncertain macro environment.
Traditionally, equity selloffs have been offset by gains in U.S. Treasuries as investors sought safe-haven assets. But this time appears different. Following the recent tariff announcements, both equities and Treasuries sold off sharply, and notably, the U.S. dollar weakened as well—suggesting either a broad deleveraging or a shift in global investor sentiment. The 10-year Treasury yield jumped from 4.20% to 4.43% in just four days, its fastest rise since 2008, while the U.S. Dollar Index dropped below 100 for the first time since mid-2023. Investors are redirecting flows into alternatives like the Japanese yen, Swiss franc, gold, and increasingly, German bunds—seen by some as a more stable sovereign safe haven. This decoupling raises important questions about the durability of Treasuries' role in global flight-to-safety dynamics—and underscores the importance of flexibility and diversification in navigating what may be an evolving global market regime.
The Silver Lining for Taxable Investors in Volatile Equity Markets
Market volatility, especially to the extent we’ve seen in 2025 is, frankly, a massive headache. Equity markets are down on the year. Disorienting headlines are flowing at warp speed. And the market mood is, well… struggling to adjust. Riding the market roller coaster of early 2025, it can be difficult to find silver linings in the chaos. Fortunately, for taxable equity investors, there is one: tax loss harvesting.
For the unfamiliar, tax loss harvesting is the practice of selling losing investments to offset taxable gains from winners, reducing your overall tax liability—while typically reinvesting in similar stocks to maintain exposures. Most importantly, it can boost after-tax returns by reducing (or eliminating) capital gains tax liabilities; a concept recognized in the investing community as tax alpha. In times when most stocks are going up, there are few losses to harvest and, thus, far less available tax alpha. However, in times when markets are choppy, there are lots of losses to pluck from on down days to offset trades on up days, hence far more tax alpha.
In fact, research has shown that tax loss harvesting can boost returns (via tax alpha) by up to an annualized 3% in periods with heightened volatility, more than double the ~1.3% generated in up markets. So while market swings might be rattling nerves and portfolios alike, they also open the door to a powerful, often overlooked advantage. In the midst of the noise, tax loss harvesting offers a rare bit of clarity—a practical strategy to turn short-term pain into long-term gain. For savvy investors, that silver lining isn’t just comforting. It’s compounding.
As the Old Adage Goes, Time in the Market Beats Timing the Market
In times of market volatility, the instinct to move to cash can be strong. However, history and research consistently show that this approach often leads to missed opportunities and diminished long-term returns. For instance, a study by Hartford Funds revealed that missing just the 10 best days in the market over a 30-year period could cut an investor's returns in half. Notably, 78% of these best days occurred during bear markets or in the early stages of a recovery, underscoring the importance of staying invested even during downturns.
Attempting to time the market by moving to cash and re-entering at the "right" moment is notoriously difficult. Research from Wells Fargo Investment Institute indicates that over a 30-year span, missing the 30 best days in the market reduced average annual returns from 8% to just 1.8%, barely keeping pace with inflation . This data highlights the risks associated with trying to predict market movements and the potential cost of being out of the market during key recovery periods.
Moreover, holding cash during inflationary periods can erode purchasing power. While cash may feel like a safe haven, it doesn't provide the growth needed to outpace inflation and meet long-term financial goals. Diversified portfolios, tailored to individual risk tolerances, offer a more effective strategy for navigating volatility. Notably, if we are in fact witnessing a global shift in sentiment towards US markets, our approach to global equity exposure should be simultaneously defensive and return-enhancing. By staying invested and focusing on long-term objectives, investors can better weather market storms and capitalize on future growth. As the old adage in markets goes: time in the market beats timing the market.
The information presented in this newsletter is the opinion of Align Impact, LLC and does not reflect the view of any other person or entity. The information provided is believed to be from reliable sources but no liability is accepted for any inaccuracies. This is for information purposes and should not be construed as an investment recommendation. Past performance is no guarantee of future performance. Align Impact, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission.
