On April 7, a fake headline appeared on messaging service X that suggested US President Donald Trump was considering a 90-day pause for his ‘reciprocal’ tariffs programme. For investors thirsty for good news after five days of turmoil, the post was a godsend: finally the clouds had parted and a silver lining had been made manifest. The response was as sharp as it was decisive: the S&P 500 whipsawed to a 3.4% gain in the blink of an eye.
Unfortunately, the good news didn’t last and word soon got around that the post was a fake one. The White House issued a rebuttal and the sell-off began. In seven short minutes a yo-yo of hope and despair saw an extraordinary US$2.4tn in market value first added to the S&P 500 and then, just as quickly, wiped off again.
Later in the same week, the same news hit the wires. Cue another massive market rally (US$4.3tn added to the S&P 500’s market value in the space of a day) – but this time the news was real and the rally held.1
The moral of the story is that we live in uncertain times where volatility (at least for now) is the only constant.
Where, then, should investors hide? If assets across the board are subject to wild swings – even those assets perceived as being potential safe havens – then it’s difficult to not feel subject to the whims of irrational volatility (see above).
But even in uncertain times, perhaps there is a path to some semblance of certainty.
Pause. Take a breath
First, consider, the possibility of the very worst-case scenario: a prolonged trade war accompanied by an extended slowdown in global growth.
Against this backdrop, the expectation would be for the European Central Bank, the US Federal Reserve and the Bank of England to cut benchmark rates. In this scenario, as previously outlined, an investor with an allocation to short duration credit is likely to earn higher incremental extra income going forward, which could more than compensate any change in rates.
It’s also worth noting that short-term investments are shielded from long-term uncertainties. In the event of volatility – caused by geopolitical ructions or changes in monetary policy such as outlined above – then an investment in short duration credit can allow investors to navigate this volatility while at the same time potentially delivering a more attractive return than cash and other ‘safe haven’ options.
In addition, a global approach, trading in multiple currencies, can also allow an element of arbitrage in terms of opportunities that may arise – between one country and another – to maximise the overall returns. Globally, monetary policies always diverge to some degree – as do asset classes based in different geographies – and over the short term this divergence is amplified (see Figure 2 below).
While we don’t believe a full-on trade war is the most likely scenario, we would note that our Euro Kurzlaufer Strategy has the positive characteristics outlined above. Primarily invested in euro-denominated short-duration credit (as well as fully currency-hedged dollar and sterling) in more than a dozen countries, across investment grade, sovereigns and corporates, it offers a third way – one, we believe, that has the potential to allow investors to both weather the current storm and get paid for it.
Investing in an age of tariffs turmoil
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1 As of 4 April, 2025.
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