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What happened?
The S&P 500 fell 2.4% on Monday and the US dollar index declined to its weakest level since 2022 after President Donald Trump’s criticism of Federal Reserve Chair Jerome Powell contributed to fears over the independence of the central bank.

Director of the National Economic Council Kevin Hassett said on Friday that Trump would “continue to study” the possibility of dismissing Powell, who he has criticized for being too slow to cut interest rates. On Monday, the president dubbed Powell “Mr. Too Late” and said he should cut interest rates now. Trump has also recently said of Powell: “If I want him out, he’ll be out of there real fast, believe me.”

There was also discouraging news on trade. A Chinese commerce ministry spokesperson warned it will “take countermeasures” against nations that reach deals with the US “at the expense of China’s interests.” This came after a week in which the US imposed further restrictions on exports of NVIDIA chips while China ordered its airlines to halt delivery of Boeing jets. On Monday, Bloomberg also reported that China’s purchases of US liquefied natural gas had fallen to zero in March.

Against this backdrop, the US dollar and US Treasuries have failed to fulfill their customary role as relative “safe havens” in uncertain times. The DXY dollar index, which tracks the US currency against six peers, fell 1% to a three-year low. The yield on the two-year US Treasury fell 3 basis points to 3.77%, as investors priced faster potential rate cuts, but yields on the 30-year US Treasury rose 6 basis points. In equity markets, all major sectors fell, with consumer cyclicals and technology performing worst. Gold prices jumped to new highs and briefly traded over USD 3,500 an ounce for the first time on Tuesday. The mood in equity markets showed signs of stabilizing, with S&P 500 futures for Tuesday's session up around 1% at the time of writing.

What do we think?
Removing the Fed Chair before the end of his term in May 2026 could call into question the ability of the central bank to set interest rates without political interference, and hence the outlook for price stability. Markets are therefore likely to be sensitive to any indication that the White House will press ahead with efforts to remove Powell, or to replace him with a more “malleable” candidate after his term expires.

Equally, after showing signs of softening its stance on trade—including with a 90-day pause on most "reciprocal" tariffs—markets will now look for clearer evidence of progress on trade deals between the Trump administration and trading partners.

In our base case, we believe Trump will likely name a Fed Chair successor later this year, even assuming he won't fire Powell. And on trade, we expect the news flow to improve. Trump said Thursday that “big progress” was being made in trade negotiations with Japan, helping lift market sentiment late in the week.

Nonetheless, investors should prepare for a volatile path ahead, and it may indeed require a volatile path for equities and bonds to drive more moderate policy choices.

How to invest?
At times of heightened uncertainty and elevated volatility, we see three broad strategies investors can pursue:

Manage volatility. For investors concerned about the near-term risks and looking to hedge portfolios against potential further downside.

• Gold. Gold has continued to serve as an effective hedge amid ongoing trade uncertainty, taking its gains since the start of the year to over 31%. We continue to see support from investment demand, ongoing central bank diversification, and a volatile macro backdrop.
• Seek durable income. Recent developments have added a political risk premium to US Treasuries, reflected in a higher yield. However, we expect this to be a step change rather than an ongoing process. With yields now high, we believe US Treasuries will offer portfolio diversification benefits and should perform well in the event of a slowdown in US GDP growth. While Powell has warned that the Fed could be constrained in cutting rates if US tariffs push up prices, our base case remains for 75-100 basis points of easing this year, further eroding returns from cash deposits.
• Diversify with hedge funds. By dynamically adapting to macro shifts, hedge fund strategies like discretionary macro, equity market neutral, select relative-value, or multi-strategy can cushion portfolios in down markets. We believe the alpha orientation and conservative nature of multi-strategy funds will mean near-term performance is likely to be largely insulated from market volatility. Similarly, macro strategies should, in our view, generate positive outcomes amid the volatility. Investors, however, should be aware of the unique drawbacks inherent in hedge funds, such as illiquidity and a lack of transparency.

Take advantage of volatility. For investors unsure about the near term, but looking to utilize high levels of volatility to earn additional portfolio income.

• Find oversold stocks. We believe recent volatility has created select attractive opportunities at a single stock and individual market level, with various companies with good longer-term prospects now trading at more attractive valuations. In the US and Asia, we have identified companies across a range of sectors that are higher quality, have solid business models, and offer, in our view, good longer-term value. In Europe, our “Six ways to invest in Europe” list focuses on defensive champions that can benefit from increased market volatility, as well as from likely higher European defense spending and fiscal stimulus.

Look through volatility. For investors who were underinvested going into the sell-off or are willing to take on near-term risk for likely long-term rewards.

• Phase into stocks. While volatility will likely persist, we view US equities as Attractive, with a year-end S&P 500 target of 5,800. Phasing into the market can be an effective way to position for medium- and longer-term upside while managing timing risks. Capital preservation strategies can be another way to manage near-term downside risks.
• Transformational Innovation Opportunities (TRIOs). We continue to see strong long-term potential in our TRIOs— Artificial intelligence, Longevity, and Power and resources. While companies exposed to each of these ideas have been caught up in near-term derisking, we expect structural trends to be the biggest drivers over the long term, and the recent sell-off provides a potential opportunity for investors to build structural exposure.