US equities have calmed after a turbulent start to the year, but the mood is far from euphoric. With President Trump’s so-called “Liberation Day” tariffs set to be announced on Sunday, it remains uncertain whether the recent gains mark the beginning of a recovery or simply a pause before the next downturn.
“This isn’t a real rebound,” says Laura Cooper, investment strategist at Nuveen. “We’re more in a wait-and-see phase.” A potential turning point is expected on Sunday, when the United States, according to Trump, will be “liberated” from countries that, in his view, have taken unfair advantage of US trade openness for too long.
Initially, the plan seemed to target the so-called “dirty fifteen,” countries with a significant trade surplus with the US. But in a social media post on Monday, Trump said that any country purchasing oil or gas from Venezuela could face a 25 percent tariff when trading with the United States.
“If we see broad, sweeping tariffs, especially if they trigger reciprocal action, investors will start to pull back from risk again,” Cooper warned in an interview with Investment Officer. In that case, she said, cyclical stocks would likely take the biggest hit.
That’s why Nuveen is leaning toward defensive sectors like dividend-paying stocks and mid-sized US companies focused on the domestic market. According to Cooper, these segments are better positioned to withstand trade-related volatility.
In line with previous episodes, Trump softened his tone on Monday. He suggested that “a whole lot of countries” might be temporarily exempt from the new tariffs. That friendlier tone gave markets fresh momentum. The S&P500 rose 250 points from its low earlier this month, while the Nasdaq has fully erased its losses for the year. The rally began last week after four consecutive weeks of declines.
Bond yields also climbed, with the 10-year Treasury yield rising to 4.34 percent. The dollar strengthened against other major currencies.
Economic data takes center stage
The second major test for markets will come in the form of economic data, says Cooper, speaking from London. While soft indicators like business surveys already point to a cooling economy, the real signal will come from hard data on employment and inflation.
“If we see a clear deterioration in the labor market, the Fed may have to become more cautious. And inflation, especially if it starts reflecting the impact of tariffs, will be critical,” she said.
So far, some green shoots have emerged. S&P Global’s composite PMI rose to 53.5 in March, the highest in three months, thanks to strength in the services sector. A reading above 50 indicates expansion in the private sector. Cooper expects US GDP growth in 2025 to come in just below two percent. That represents a slowdown but remains consistent with a soft landing scenario.
Retail investors vs institutional capital
Despite the recovery, professional investors remain cautious in their US equity positioning. According to a recent Bank of America survey, US equities are currently underweighted by 23 percent in institutional portfolios. This is the lowest level in nearly two years. That stands in sharp contrast to the behavior of retail investors, who continue to buy in.
Retail investors have already poured nearly 70 billion dollars into US stocks and ETFs this year, according to the Financial Times, citing data from VandaTrack. That is only slightly below the 71 billion dollars they invested in the final quarter of 2024, when markets were rallying.
That confidence, according to Saira Malik, chief investment officer at Nuveen, is not misplaced. She warns against stepping out of the market during moments of uncertainty.
“Pulling out of the market at the height of uncertainty is unwise. It’s better to stay the course than abandon ship,” Malik said.
She points out that US equities delivered positive returns in more than three-quarters of the years between 1937 and 2024, with an average annual return close to 20 percent. “Investors who remain on the sidelines risk missing the strongest recovery days, and that can take a serious toll on long-term returns.”
According to Malik, dividend stocks and listed infrastructure companies offer attractive protection against inflation and economic headwinds. “These companies have strong balance sheets, predictable cash flows and provide essential services like energy and transportation. That allows them to raise prices regularly without significantly hurting demand,” she said.