The United States has moved forward with the decision to implement tariffs globally—a bold policy that has sparked debates, challenges, and uncertainty across industries and markets. While the initial focus was largely on trade tensions with China, the expansion of tariffs to a worldwide scale not seen since the 1930’s signals a significant shift in U.S. trade policy. This move has ignited questions about the consequences for economic stability and the broader geopolitical landscape.

Economic Impacts: Inflation and GDP Growth

The proposed tariffs are seen as a double-edged sword, with potential effects that are both recessionary and inflationary. Analysts estimate that the tariffs may contribute an additional 1–2% to the Consumer Price Index (CPI), fueling inflation. At the same time, GDP growth could face a setback, with a projected 1% negative impact. These figures highlight the delicate balance policymakers must strike between protecting domestic industries and fostering global economic growth.

Market Reactions: Shockwaves Across Equities and Bonds

Global markets have interpreted the tariffs as a growth shock rather than an inflationary force, leading to significant turbulence across asset classes. This sentiment was reflected in the sharp decline in U.S. equity markets from February’s peak. Beyond the U.S., international markets outperformed, with European and Chinese equities rallying on expectations of fiscal stimulus prior to the surprising tariffs announcement. This divergence highlights the global impact of U.S. trade policy, as investors reassessed their exposure to American equities amid heightened uncertainty.

In contrast, bonds provided a partial safe haven, though performance varied across different fixed-income segments. The 10-year U.S. Treasury yield fell, reflecting concerns over slowing economic growth. However, the decline in yields was not as steep as some anticipated, given persistent inflation concerns and the Federal Reserve’s cautious approach to potential rate cuts.

The contrasting reactions underscore the complexities of how different asset classes respond to economic policy changes, further complicating decisions for investors.

Methodology and Policy Goals: A Cloud of Confusion

The methodology used to compute opposing nations’ tariffs appears to be somewhat crude, suggesting that the current proposals may serve as a starting point for further negotiations. However, this has led to widespread confusion regarding the ultimate objectives of the Trump administration. Are the tariffs aimed at reshoring manufacturing to the U.S. as a long-term goal? Or are they a strategic maneuver to extract quick wins by negotiating lower trade barriers? Until the White House provides a clearer roadmap, industry leaders will struggle to make informed infrastructure investment decisions.

Volatility: The Only Certainty

The lack of clarity in policy direction has created an environment of sustained volatility. Federal Reserve Chair Jerome Powell has echoed concerns about this uncertainty. While the Fed Dot Plot now anticipates a more accommodative approach, the inflationary risks associated with tariffs also raise the possibility of a hawkish stance. The unpredictable nature of the economic landscape poses challenges not only for policymakers, but also for investors: if inflation is the threat, it will be more difficult for the Federal Reserve to come to their help by adding liquidity in the markets through accommodating monetary policy.

Continued Outlook

As we reexamine the four scenarios which we believe could unfold:

• “Stagflation” jumped to the forefront due to (1) the potential inflationary impact of the tariffs and (2) the demand destruction caused by the tariffs and the associated slower resulting growth;
• A “hard landing”, which would quickly bring the recession that has eluded many economists, and seemed less likely in the not so distant past, has gained ground, though economic indicators haven’t yet deteriorated;
• The “soft-landing”, which the Fed had been looking to engineer, has suffered a setback due to the new uncertainty brought on by the tariffs; and
• The Fed tolerating “higher inflation” for a while as to not sacrifice growth and full employment, which now seems the least likely scenario to unfold given the new concerns caused by the tariffs’ implementation.

Implications for Diversification: Lessons for 60/40 Investors

The global implementation of U.S. tariffs marks a pivotal moment in economic history, reshaping trade dynamics and forcing industries and investors to adapt to a new normal. While the long-term implications remain uncertain, the immediate impact is clear: heightened volatility, shifting market dynamics, and the need for strategic decision-making in an ever-changing global economy. For 60/40 portfolio investors, the threat of inflation introduces the risk of positive correlation between stocks and bonds—a scenario where bonds may fail to provide the expected diversification during extended equity declines. This mirrors the challenges faced in 2022 when both asset classes struggled simultaneously. Restoring diversification is essential, and managed futures or Commodity Trading Advisors (CTAs) have demonstrated a strong historical track record in navigating such turbulent periods.

In the face of deteriorating market conditions, investors must take decisive action to safeguard their portfolios. Diversification and risk management are no longer optional, they are imperative. Increasing exposure to alternative assets, particularly risk-mitigating strategies, is essential in navigating today’s volatile landscape.

The widening dispersion of returns across asset classes presents a prime opportunity for hedge fund strategies like managed futures. These convex strategies not only enhance portfolio resilience but also create valuable opportunities for portable alpha, strengthening traditional asset allocations with much-needed flexibility.

At the very least, investors should rethink their reliance on conventional holdings and strategically incorporate risk-mitigating strategies. As we discuss in our article, Fixing the 40: Reassembling the 60/40 Portfolio, such additions can provide critical diversification during turbulent phases of the economic cycle, including inflationary pressures.

If you’re ready to optimize your portfolio for resilience and sustained performance, we welcome the opportunity to discuss your specific diversification needs. Let’s connect—reach out to us at the contact details below.

Benchmark	Q1’2025
S&P 500 TR	-4.3%
Bloomberg US Aggregate Bond TR Index	2.8%
S&P GSCI TR	4.9%
US Dollar Index	-2.7%
SG CTA Index	-2.5%
SG Trend Index	-4.7%
SG STTI	Unchanged

For further information about the Galaxy Plus Managed Account Platform, please contact:

Marc Lorin, CIO, (630) 410-1859, mlorin@galaxyplus.io

About Galaxy Plus:

Galaxy Plus is a managed account platform for managers and investors providing an institutional level, “managed account like” experience in alternative assets. The Galaxy Plus Platform is an innovative solution with a flexible structure, increased efficiency, lower costs, increased risk mitigation, and a highly controlled and secure infrastructure.

IMPORTANT DISCLAIMERS: 

The author’s point of view reflected in this article should not be construed as investment advice.  The CTA strategies noted herein, some of which may be available on the Galaxy Plus platform, do not represent an endorsement of a particular CTA or strategy.  The information presented is for illustrative purposes only and is based on the opinion of the author as a result of recent market conditions and does not represent the view of New Hyde Park Alternative Funds, LLC.

AN INVESTMENT IN ANY FUND IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK.  THE PAST RESULTS OF A FUND AND/OR ITS TRADING ADVISOR ARE NOT INDICATIVE OF HOW SUCH FUND WILL PERFORM IN THE FUTURE. 3521-NHPAF-04162025