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Global financial markets experienced significant volatility during the month of April, largely driven by US trade policy shifts, particularly President Trump's tariff announcements.
Indeed, markets were rocked by Trump's "Liberation Day" tariff announcement on 2 April, imposing a blanket 10% tax on imports, with higher rates on specific trading partners, escalating to 145% on Chinese imports. This triggered a sharp sell-off, with the Dow Jones Industrial Average dropping 2,200 points and the S&P 500 falling 6% in the worst week since 2020 with global equities losing over $5 trillion in market value. The stress was also visible in the US Treasury market which experienced rising bond yields despite the equity sell-off—a rare event—and in the forex market as the dollar suffered one of its biggest sell-off in recent history. Gold surged as global investors decided to look for shelters in time of heightened uncertainties.
However, to the surprise of many, main equity indices managed to recover all their losses since, as the S&P 500 and the Nasdaq are now back into bull market territory (defined as a 20% rise from recent lows). Meanwhile, the bond market and the dollar have both been stabilising.
As such, we continue to believe that the global economy is currently facing an unusually broad range of economic scenarios. Below we outline three possible outcomes with an estimated probability assigned to each of them. The main scenario could potentially lead to range-bound markets. The pessimistic scenario could lead to more downside. The optimistic scenario would bring us to new all-time highs for equity markets in the coming months. Stay tuned.
Our asset allocation preferences are based on 5 indicators, including 4 macro and fundamental indicators (leading) and 1 market dynamics (coincident). The weight of the evidence suggests maintaining a constructive view on equities (neutral). Below we review the positive and negative factors for each of them.
Pillar 1: Macro cycle (NEUTRAL)
Global growth is facing headwinds from the US tariff announcements made on 2 April, which have already had some impact on trade and have fuelled fears of inflation in the US. The suspension and rollback of tariffs, including the most recent announcements with China, provides hopes that the short-term impact could eventually be contained and that the medium-term impacts might end up being limited. However, uncertainty has not been (yet?) fully dispelled and the blow to confidence might take some time to dissipate. While risks of pronounced growth slowdown in Q2 remain, particularly in the US, China and Germany, resilient labour markets, prospects of trade tensions’ easing and more supportive monetary and fiscal policies ahead are helping to cushion the impact.
US: The job market remains strong, supporting consumer spending despite tariff-driven inflation concerns. However, sentiment is weakening, and risks remain tilted to the downside if trade tensions persist.
Eurozone: Early signs of recovery, especially in Southern Europe and Germany, are now threatened by US tariffs and potential overcapacity from China. Inflation pressures are easing, and the ECB is set to continue rate cuts.
China: Stimulus measures have improved sentiment and activity, but weak domestic demand and the export hit from tariffs continue to weigh on growth.
The macroeconomic environment is currently rated neutral for risk assets. Positive fundamentals such as robust labour markets and accommodative monetary policy are offset by uncertainties around trade policies and inflation uncertainty.
Pillar 2: Liquidity (POSITIVE based on forward-looking factors)
Tax collection in April has withdrawn some liquidity in the US but the upward dynamic is expected to resume in May, especially as no agreement on the debt ceiling is in sight (TGA will decline again in the coming weeks). Rising M2 liquidity and US dollar weakness support global liquidity.
The liquidity backdrop is positive for risk assets with prospects of monetary policy easing, fiscal support, liquidity injections and a weaker USD pointing to supportive liquidity dynamics in the months ahead.
Pillar 3: Earnings (NEUTRAL, upgraded from negative)
90% of the S&P 500 have reported Q1 earnings: 78% of them are beating estimates and the blended growth rate is 13,4% YoY.
The expected earnings growth for the main US equity indices remains quite constructive for 2025 and 2026.
It is also interesting to note that the vast majority of S&P 500 companies guidance remains unchanged, which is a surprise as many analysts were expecting rather gloomy outlook by executives.
However, we note that downward revisions have been more aggressive in the rest of the world than in the US as currency appreciation is a headwind for companies in Europe and in Asia.
Pillar 4: Valuations (NEUTRAL)
Valuations also improved in April and already shifted from negative to neutral a few weeks ago. The recent rebound in equity markets has been driven primarily by multiple expansion rather than fundamental earnings growth, raising some concerns about the sustainability of the rally. US large-cap stocks continue to trade at a premium relative to historical levels, but the broader market—including smaller-cap and international equities—now trades at or below long-term median valuation multiples. This normalisation suggests a more balanced risk-reward profile for diversified investors, assuming earnings don’t deteriorate further in the coming quarters.
We note that Warren Buffett’s favourite valuation tool— the market cap-to-GDP—shows that the S&P 500 recently traded around 168% market cap-to-GDP vs the global equity markets at around 90%. That suggests US stocks are (still) expensive relative to the rest of the world. 
Source: Goldman Sachs
Pillar 5: Market factors (POSITIVE upgraded from neutral)
The aggregate market factors’ signal has increased from 75% to 100%, reflecting a stronger positive outlook across key metrics. This shift is based on notable improvements in market sentiment, technicals, and trend indicators over the past week.
The current regional scores (USA at 75% and Europe at 90%) both exceed the threshold of 75%, supporting the move to a fully positive stance. This allocation reflects increased confidence in both regions' near-term performance.
Earnings has been upgraded to neutral. Market factors have been upgraded to positive.
With 2 pillars (liquidity and market factors) signalling an overweight and 3 in neutral (macro, earnings and valuations), the weight of evidence is neutral for equities.
