US investors caught off-guard by depth of tariffs are braced for more pain

By Suzanne McGee

(Reuters) - Investors had been prepared for a shock heading in to U.S. President Donald Trump's announcement of sweeping new tariffs on Wednesday, but many said that what played out was the worst-case-scenario for markets. Their message: Buckle up and brace yourself.   

In the run-up to what Trump had billed as "Liberation Day," investors had sought to remain optimistic that clarity about the administration's tariff policies would help the volatile U.S. stock market stabilize.

But following Trump's unveiling of what some said were larger-than-anticipated tariffs - and in the midst of the market selloff that followed - many of the same individuals said their main takeaway was a sense of heightened risk and plenty of unanswered questions. 

"This is bigger than I expected; bigger than anyone really expected," said Mark Spindel, chief investment officer of Potomac River Capital. "And the market is reacting accordingly."

Global markets tumbled on Thursday, with the dollar and U.S. stocks among the hardest hit on fears that a broadening trade war would push an already fragile world economy into recession.

Reuters talked to a range of investors over the last week, before and after the announcement. Here are some of their views: 

MARK MALEK, CHIEF INVESTMENT OFFICER, SIEBERT FINANCIAL:

Before the tariffs announcement: “There’s more potential downside than upside right now.”

After the tariffs announcement: "Brace yourself, because here comes the downside. This is a lot more than the market was expecting, if you look at the size of the tariffs. This is going to have a material impact on corporate earnings. I can’t imagine any company isn't recalibrating earnings expectations for the full year."

MICHAEL ARONE, CHIEF INVESTMENT STRATEGIST, STATE STREET GLOBAL ADVISORS:

Before: “There is potential for more volatility on April 2 and post that deadline. I am still skeptical we will get clarity.”

After: "Clearly, markets are still unhappy with the current trade policy. And everyone is still on hold - businesses, consumers, the Fed - to see how things play out. I think anything that offers a hedge against inflation risk should do better, such as gold and hard assets."

ANGELO KOURKAFAS, SENIOR INVESTMENT STRATEGIST, EDWARD JONES

Before: April 2 will probably not “completely really clear out all the uncertainties that potentially still remain.”

After: "The takeaway is that the tariffs announced are closer to the more aggressive side of the spectrum. The uncertainty will remain. How will other countries respond? Some uncertainty will linger in the weeks to come as this plays out. It just is reinforcing the benefits of a diversified portfolio."

MARK SPINDEL, CHIEF INVESTMENT OFFICER, POTOMAC RIVER CAPITAL: 

Before: "I think the market is really holding its breath and ... trying to convince itself, maybe incorrectly, that we’ve seen the lows."

After: "The market's initial reaction just underscores the fact that the tariffs are huge. If we thought this was the end of having to think about tariffs, we were wrong. We don’t know what went into Trump's spreadsheet calculations of these rates. But the bottom line is that this is inflationary, and the odds of a recession have gone up." 

JASON BRITTON, CHIEF INVESTMENT OFFICER, REFLECTION ASSET MANAGEMENT: 

Before: "Whatever comes next may lack detail and specificity and that will drive the market crazy. But there's a chance we'll end up with a sigh of relief in spite of more volatility."

After: "If you really parse the information, I think people will digest this and see it as a mixed bag, probably not as bad as it has been portrayed. If the big tech companies sitting on enormous amounts of cash are going to get pinched, I’m a buyer on weakness. It’s just the market over-reacting and I’m happy." 

ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH: 

Before: “I think they’re going to start shifting gears and move from tariffs … There will be more emphasis on the tax talk.”

After: "Taxes may be the next thing he (Trump) thinks about. But tariffs unfortunately don't seem to be going away soon as an issue. What will other countries do in retaliation? How will this affect U.S. corporations and U.S. consumers? It's going to be difficult for investors going forward; I expect the (volatility index) to starting moving even higher, possibly above 30."

(Reporting by Suzanne McGee in New York; Additional reporting by Saqib Iqbal Ahmed and Lewis Krauskopf in New York; Editing by Megan Davies and Matthew Lewis)