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April 9, 2025

Trillium Insight on Tariffs and Market Volatility

The April 2nd announcement of the Trump administration’s sweeping tariffs marks a pronounced shift and reorientation of the world’s trade order. Whatever changes to the policy we might see through negotiations, the scale and lack of nuance in this policy shift will have significant implications for how other countries engage with the United States on trade and will likely result in a realignment of trade partnerships across the globe.

While small-cap stocks were hard hit during the first half of 2022, August’s earnings season revealed a bounce back for the asset class. What does this mean for Trillium’s ESG Small/Mid Cap Core Portfolio?

Trillium Insight on Tariffs and Market Volatility Trillium Insight on Tariffs and Market Volatility

Dear U.S. Environmental Protection Agency Administrator and Members of Congress,

Equity markets have been sharply negative in response to the announcement, and to economists’ expectations for a 0.5 - 1.0% reduction in US GDP for the rest of the year. Sectors with global supply chains and those that would be most impacted by a weaker consumer have seen the sharpest declines. Investors have also been harvesting gains in the big winners in the technology and communications sectors (Magnificent 7), as a general decline in global economic growth will impact the lofty expectations for those names.

As we shared in our early March commentary, given the high level of uncertainty around the administration’s policies including those related to trade, we have approached navigating the equity markets with a focus on strong businesses with product leadership and solid balance sheets. We have been stress-testing portfolios for different outcomes, looking at impacts at the sector and industry level, while also taking into account the unique supply chain and end market considerations at the company level. We are incorporating assessments of other policy priorities, acknowledging that historically defensive sectors, like healthcare, may perform differently in this environment. Across our strategies, we have also been trimming high P/E names; taking some gains and reducing exposure at the margin. As active investors, we have been able to make shifts to move to a slightly defensive positioning and manage around large name concentrations in some benchmarks.

As of the writing of this note, our lower beta and lower exposure to and within the Magnificent 7 names have been additive to relative performance for all our equity strategies. On down days in the market our portfolios have generally performed better than their respective benchmarks. On market pullbacks we have seen meaningful divergence in the Magnificent 7 stocks which had been the driver of market performance over the last 2 years.    Our relative underweight to this group has been additive to performance, and the names we do hold, as a group, have been stronger performers.

The general atmosphere of extreme uncertainty remains in the markets and the global economy. This has led to sharp and fast market responses to new information; in many cases overcorrecting in either direction before calibrating the new data point (or the receipt of new conflicting information). The Consumer Discretionary sector exemplified these extreme swings opening the day on April 4th down about 3% more than the S&P 500 (after underperforming the S&P 500 by about 2% on 4/3). Once the Trump administration reported ongoing negotiations with Vietnam on Tariffs, the Consumer Discretionary sector reversed course to erase the cumulative underperformance experienced since the tariffs were announced on 4/3.

Countries have and will continue to respond with reciprocal tariffs. Negotiations around the size, scale, and timing of tariffs are underway. Changes to supply chains are not made at the stroke of a pen.  In many cases they require significant capital expenditures that companies will need to evaluate within a very unpredictable geopolitical environment. New trade partnerships and capital investments are likely to be made in the coming months and years. How the United States fits into those is unknown, but there is potential for other developed economies, such as those in Europe, to be beneficiaries longer term.

We believe that our portfolios are well-positioned given our current visibility. At this time we have no plans to make significant changes to our portfolios, but are monitoring the macroeconomic backdrop closely, while maintaining our focus on individual company fundamentals. Where we are managing portfolios across asset classes, we continue to stay near neutral on our allocations between equities and fixed-income, with a focus on liquidity for cash needs over the next 12-18 months. Within equities, where appropriate, we have been and are continuing to increase our allocation to developed international markets.

We understand these market times can be extremely unsettling, to say the least. If you have any questions or would like to discuss your portfolio in more detail, please do not hesitate to reach out.

Equity markets have been sharply negative in response to the announcement, and to economists’ expectations for a 0.5 - 1.0% reduction in US GDP for the rest of the year. Sectors with global supply chains and those that would be most impacted by a weaker consumer have seen the sharpest declines. Investors have also been harvesting gains in the big winners in the technology and communications sectors (Magnificent 7), as a general decline in global economic growth will impact the lofty expectations for those names.

As we shared in our early March commentary, given the high level of uncertainty around the administration’s policies including those related to trade, we have approached navigating the equity markets with a focus on strong businesses with product leadership and solid balance sheets. We have been stress-testing portfolios for different outcomes, looking at impacts at the sector and industry level, while also taking into account the unique supply chain and end market considerations at the company level. We are incorporating assessments of other policy priorities, acknowledging that historically defensive sectors, like healthcare, may perform differently in this environment. Across our strategies, we have also been trimming high P/E names; taking some gains and reducing exposure at the margin. As active investors, we have been able to make shifts to move to a slightly defensive positioning and manage around large name concentrations in some benchmarks.

As of the writing of this note, our lower beta and lower exposure to and within the Magnificent 7 names have been additive to relative performance for all our equity strategies. On down days in the market our portfolios have generally performed better than their respective benchmarks. On market pullbacks we have seen meaningful divergence in the Magnificent 7 stocks which had been the driver of market performance over the last 2 years.    Our relative underweight to this group has been additive to performance, and the names we do hold, as a group, have been stronger performers.

The general atmosphere of extreme uncertainty remains in the markets and the global economy. This has led to sharp and fast market responses to new information; in many cases overcorrecting in either direction before calibrating the new data point (or the receipt of new conflicting information). The Consumer Discretionary sector exemplified these extreme swings opening the day on April 4th down about 3% more than the S&P 500 (after underperforming the S&P 500 by about 2% on 4/3). Once the Trump administration reported ongoing negotiations with Vietnam on Tariffs, the Consumer Discretionary sector reversed course to erase the cumulative underperformance experienced since the tariffs were announced on 4/3.

Countries have and will continue to respond with reciprocal tariffs. Negotiations around the size, scale, and timing of tariffs are underway. Changes to supply chains are not made at the stroke of a pen.  In many cases they require significant capital expenditures that companies will need to evaluate within a very unpredictable geopolitical environment. New trade partnerships and capital investments are likely to be made in the coming months and years. How the United States fits into those is unknown, but there is potential for other developed economies, such as those in Europe, to be beneficiaries longer term.

We believe that our portfolios are well-positioned given our current visibility. At this time we have no plans to make significant changes to our portfolios, but are monitoring the macroeconomic backdrop closely, while maintaining our focus on individual company fundamentals. Where we are managing portfolios across asset classes, we continue to stay near neutral on our allocations between equities and fixed-income, with a focus on liquidity for cash needs over the next 12-18 months. Within equities, where appropriate, we have been and are continuing to increase our allocation to developed international markets.

We understand these market times can be extremely unsettling, to say the least. If you have any questions or would like to discuss your portfolio in more detail, please do not hesitate to reach out.

Read more (PDF)

Equity markets have been sharply negative in response to the announcement, and to economists’ expectations for a 0.5 - 1.0% reduction in US GDP for the rest of the year. Sectors with global supply chains and those that would be most impacted by a weaker consumer have seen the sharpest declines. Investors have also been harvesting gains in the big winners in the technology and communications sectors (Magnificent 7), as a general decline in global economic growth will impact the lofty expectations for those names.

As we shared in our early March commentary, given the high level of uncertainty around the administration’s policies including those related to trade, we have approached navigating the equity markets with a focus on strong businesses with product leadership and solid balance sheets. We have been stress-testing portfolios for different outcomes, looking at impacts at the sector and industry level, while also taking into account the unique supply chain and end market considerations at the company level. We are incorporating assessments of other policy priorities, acknowledging that historically defensive sectors, like healthcare, may perform differently in this environment. Across our strategies, we have also been trimming high P/E names; taking some gains and reducing exposure at the margin. As active investors, we have been able to make shifts to move to a slightly defensive positioning and manage around large name concentrations in some benchmarks.

As of the writing of this note, our lower beta and lower exposure to and within the Magnificent 7 names have been additive to relative performance for all our equity strategies. On down days in the market our portfolios have generally performed better than their respective benchmarks. On market pullbacks we have seen meaningful divergence in the Magnificent 7 stocks which had been the driver of market performance over the last 2 years.    Our relative underweight to this group has been additive to performance, and the names we do hold, as a group, have been stronger performers.

The general atmosphere of extreme uncertainty remains in the markets and the global economy. This has led to sharp and fast market responses to new information; in many cases overcorrecting in either direction before calibrating the new data point (or the receipt of new conflicting information). The Consumer Discretionary sector exemplified these extreme swings opening the day on April 4th down about 3% more than the S&P 500 (after underperforming the S&P 500 by about 2% on 4/3). Once the Trump administration reported ongoing negotiations with Vietnam on Tariffs, the Consumer Discretionary sector reversed course to erase the cumulative underperformance experienced since the tariffs were announced on 4/3.

Countries have and will continue to respond with reciprocal tariffs. Negotiations around the size, scale, and timing of tariffs are underway. Changes to supply chains are not made at the stroke of a pen.  In many cases they require significant capital expenditures that companies will need to evaluate within a very unpredictable geopolitical environment. New trade partnerships and capital investments are likely to be made in the coming months and years. How the United States fits into those is unknown, but there is potential for other developed economies, such as those in Europe, to be beneficiaries longer term.

We believe that our portfolios are well-positioned given our current visibility. At this time we have no plans to make significant changes to our portfolios, but are monitoring the macroeconomic backdrop closely, while maintaining our focus on individual company fundamentals. Where we are managing portfolios across asset classes, we continue to stay near neutral on our allocations between equities and fixed-income, with a focus on liquidity for cash needs over the next 12-18 months. Within equities, where appropriate, we have been and are continuing to increase our allocation to developed international markets.

We understand these market times can be extremely unsettling, to say the least. If you have any questions or would like to discuss your portfolio in more detail, please do not hesitate to reach out.

Trillium's Approach to Investing in Energy and Power
‍No genuine effort to slow or combat climate change can ignore Energy and Power. Trillium seeks to find the companies best-positioned to lead―and benefit from―the ongoing energy transition. Learn more about our approach to investing in Energy and Power.
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‍Advocacy Impact Report - Second Half 2021
‍Trillium considers it fundamental to our mission and our fiduciary responsibility to engage with the companies that we hold in our portfolios to press for positive change that we believe will help improve ESG policies, performance, or impact. Learn more about our recent engagement activities.
Trillium Insight on Tariffs and Market Volatility
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