President Trump’s aggressive tariff policies have sent shockwaves through global markets and wreaked havoc on investments and pensions — and could soon push up the price of iPhones and Nike trainers.
Although Trump seemingly backed down from escalating his trade war this week (with the exception of China), much of the damage had already been done and, coupled with extreme market uncertainty, has jeopardised even “safe haven” assets such as bonds.
Market volatility is at its highest level since the Covid pandemic as investors struggle to keep up with how countries react to America’s tariffs. Following sharp falls at the start of last week, markets temporarily surged after Trump announced a 90-day freeze on further tariffs, but soon dipped again and most are still down since the start of the year.
• How to cope with the Trump tariff turmoil: stick, twist or sell?
At mid-afternoon on Friday the FTSE 100 was down 1.7 per cent on the week, while America’s S&P 500 was up by 5.6 per cent and the technology-heavy Nasdaq was up 9.2 per cent.
Most households will be affected by the economic fallout in some way. Here’s what you need to know to protect your money.
How long will the market take to recover?
It is impossible to know when markets will fully regain their lost ground and experts urge against trying to time the markets.
Ian Cook, a wealth manager at Quilter Cheviot, said: “Historical data consistently demonstrates that, given sufficient time, equity markets tend to outperform more conservative assets like cash and bonds. For investors who do not require immediate access to the capital tied up in shares, the most prudent course of action is typically to ride out the inevitable market fluctuations.”
The wealth manager Fidelity International examined what happened following the ten biggest one-day falls in the FTSE 100 since 2000. On average, the market was 41 per cent higher over three years and 71 per cent after five.
If you’re feeling brave, you could try to buy on the dips. Many investors seem to have been trying to do just this, with major trading platforms such as Hargreaves Lansdown and Interactive Investor reporting more “buys” than “sells”. But this also presents its risks.
“Trying to second-guess short-term movements can often do more harm than good,” Cook said. “For long-term investors, the most rewarding outcomes tend to stem from consistent investment discipline rather than attempting to perfectly time market entry and exit points.”
The best way to mitigate risk is to ensure you have a diversified portfolio, investing in a mix of different assets around the world.
How much exposure do I have to the US economy?
Given its size, most investors will have significant exposure to the US economy, including those saving for a pension. About 70 per cent of a typical defined contribution workplace scheme is invested in overseas shares, according to a 2023 government study. A sizeable portion of this will be in US markets.
The FTSE World index, which tracks the performance of the largest companies in developed and advanced economies in the world, weighted by size, has 63 per cent in US shares, 7.7 per cent in eurozone companies and 3.37 per cent in the UK. The top ten holdings of the index are all US technology firms, including Apple, Microsoft and Nvidia.
Between the beginning of March to April 9, when Trump paused his tariff war, the S&P 500 index of American companies dropped about 15 per cent. It had recovered by about 4 per cent by mid-afternoon on Friday.
It will most likely recover further. One of the largest single daily drops in the S&P 500 was on March 16, 2020, during the pandemic, when it fell by about 12 per cent. Since then it has risen by more than 107 per cent.
• What the stock market chaos means for your pension
How exposed am I to bonds?
One of the most worrying developments last week was the sell-off in US treasuries. These are US government bonds (essentially an IOU), which are meant to be safer than shares and rarely have sharp movements in value.
Last week, US treasury yields (which have an inverse relationship to their price) spiked as investors sold their holdings due to heightened concerns about the country’s ability to service its debts. On Friday yields continued to rise despite Trump backing down from escalating his tariff war.
About 24 per cent of defined contribution pensions are invested in bonds, according to the Pension Policy Institute research group, and they have typically been seen as a safe investment, especially compared with equities.
Most bond funds will have significant exposure to US treasuries. For example, the top-rated Artemis Strategic Bond fund has about 26 per cent in two-year US treasuries and 14 per cent in five-year treasuries.
What if I am close to retirement?
For those nearing or already in retirement, preserving capital and a reliable income take precedence.
Cook advises taking a cautious stance, particularly for investors with significant equity exposure: “For most people, if you are very close to retirement, it’s advisable not to have a very high exposure to equity markets. If you do, you may want to consider keeping your pension invested and drawing income from elsewhere, giving your pot time to recover if you’re able.”
In more extreme scenarios, individuals with substantial equity holdings might need to contemplate delaying their retirement to ensure their long-term financial security.
Maintaining one or two years’ worth of essential expenses in readily accessible cash is a good way to ensure you don’t need to sell shares when they are down.
Should I gamble on interest rates?
Saving and mortgage rates are closely linked to the Bank of England base rate, which has come down from a recent peak of 5.25 per cent last year to 4.5 per cent.
Many analysts expect more rate cuts to come as the bank attempts to stimulate the UK economy in the face of a looming global slowdown — the first cut could come as soon as next month. However, it could be that the bank does not cut rates as far or as fast as expected if inflation rises sharply — typically lower rates are viewed as inflationary because they encourage more spending.
In this uncertain environment, exploring fixed-rate savings accounts may be a prudent move. These offer a guaranteed interest rate for a specified period, providing a degree of insulation against potential future rate reductions.
The best one-year fixed rate is from QIB, which pays 4.7 per cent. It operates as an Islamic bank, meaning it does not strictly pay interest but has a “target” return.
The best easy-access deal is from the savings app Chip, paying 4.76 per cent, although this includes a 1.26 per cent bonus for three months, after which the rate drops to 3.55 per cent.
Both accounts are fully protected by the Financial Services Compensation Scheme, which covers up to £85,000 should a firm holding your money go bust.
For mortgage customers the market upheaval may be a silver lining. Mortgage rates are priced around future expectations for interest rates, so if these are expected to fall then mortgage deals could get cheaper.
Barclays and Coventry Building Society both launched fixed mortgage deals below 4 per cent last week, and more lenders are expected to follow suit.
Some homeowners may prefer a tracker mortgage, where the rate is pegged to the Bank rate. Halifax offers a deal at 0.11 per cent above the base rate for two years (giving a starting rate of 4.61 per cent) with a £1,499 fee, for those with a 40 per cent deposit.
Should I buy US consumer goods now?
Some analysts suggest buying US consumer goods such as iPhones and Nike trainers now to avoid the impact of the tariffs feeding through to shop prices — but it is wise to avoid impulsive purchases.
The UK has not retaliated against Trump’s tariffs by imposing its own import levies, but many US goods are likely to cost more because the nature of global supply chains means products will have crossed borders several times, with tariffs impacting each crossing.
There were fears that the price of a new iPhone could rise by at least £300 to £1,499. At least, that was the case before a late concession on Saturday that exempted smartphones from the most punitive of Trump’s tariffs. The move is expected to benefit companies such as Apple.
However, unless you are planning to buy these goods anyway, it may be worth holding out. The exact impact of tariffs on consumer prices is uncertain and will depend on various factors, including how businesses absorb the costs and how other countries respond.
Should I fix my energy deal?
The energy price cap, which is the maximum a supplier can charge for each unit of gas and electricity, increased by 6.4 per cent in April. It means the average dual fuel customer paying by direct debit will see their costs rise by £111 to £1,849.
However, the increase in the cap was announced by the regulator, Ofgem, on February 25 — well before Trump’s tariffs were announced. Since then, oil prices have fallen sharply due to the prospect of slowing global trade. Brent crude prices are down about 20 per cent over a month, and this is likely to feed through to consumer energy prices.
The price cap changes every three months, and last month (again before the Trump tariffs were announced) the analyst Cornwall Insight reduced its prediction for July. It expects the cap to drop to £1,712 over a year for the typical household. Ofgem, the regulator, will confirm the July price cap in May.
That means that those who have not fixed an energy deal yet could save money if they hold off until the summer, though there are no guarantees.
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