Tariffs: What comes next for stocks, bonds and the dollar?
By Jody Jonsson, Jens Søndergaard, Chitrang Purani and Timothy Ng
Given uncertainty around tariff policy, markets will likely continue to gyrate based on the developments of negotiations, along with the evolution of US monetary and fiscal policy.
As investors evaluate their portfolios and asset allocations, a few paradigms will evolve over the next few years.
For global markets, I think higher uncertainty means higher discount rates and probably lower valuations,” says Jody Jonsson, equity portfolio manager and vice chair of Capital Group.
At greatest risk of a derating are US equities, as valuations have been high over the last few years, especially for technology stocks. Coming into 2025, the S&P 500 Index traded at 21.5 times earnings on a 12-month forward price-to-earnings basis. That multiple has shrunk to 18.6 times, slightly above its 10-year average.
US equities, dollar have lagged other asset classes
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Past results are not a guarantee of future results.
Sources: FactSet, MSCI, S&P Global. Gold: New York Mercantile Exchange continuous price. US dollar: United States Dollar Index (DXY). Data as of 22 April 2025
This recent downdraft in US equities is bringing renewed focus on non-US stocks. Over the last few years, their cheaper valuations than similar US businesses have been the main argument in favour of international equities. But other catalysts are coming into play.
In the wake of large fiscal stimulus that Germany announced in March, the prospects for growth have improved significantly in Europe’s largest economy. More broadly, member states of the European Union are focused on economic revitalisation.
Meanwhile, with fixed income, our team expects to see a price adjustment, not a full-blown crisis and talk of the US dollar no longer being the global reserve currency looks premature.
In this article, Capital Group’s portfolio managers and economists share their views on the potential implications for the economy, US dollar, stocks and bonds.
Jody Jonsson is vice chair of Capital Group and president of Capital Research and Management Company. She also serves on the Capital Group Management Committee, chairs the Investment Group Oversight and is an equity portfolio manager. She has 38 years of investment industry experience and has been with Capital Group for 34 years. Jody holds an MBA from Stanford Graduate School of Business, where she was an Arjay Miller Scholar, and a bachelor’s degree in economics from Princeton University graduating cum laude. Jody is based in Los Angeles.
Jens Søndergaard is a currency analyst at Capital Group. He has 19 years of investment industry experience and has been with Capital Group for 12 years. He holds a PhD in economics and a master’s degree in foreign service from Georgetown University. Jens is based in London.
Chitrang Purani is a fixed income portfolio manager at Capital Group. He has 21 years of investment industry experience and has been with Capital Group for three years. He holds an MBA from the University of Chicago Booth School of Business and a bachelor’s degree in finance from Northern Illinois University. He also holds the Chartered Financial Analyst® designation. Chit is based in New York.
Timothy Ng is a fixed income portfolio manager at Capital Group. As a fixed income investment analyst, he covers US Treasuries, TIPS and interest rate swaps. He has 18 years of investment industry experience and has been with Capital Group for 11 years. He holds a bachelor’s degree with honors in computer science from the University of Waterloo, Ontario. Tim is based in Los Angeles.