For nearly a year, U.S. tariffs imposed on exports from around the world have hung over the markets, fueling persistent uncertainty.
Levels of the tariffs changed. Bilateral agreements were negotiated but often were not yet ratified. That uncertainty reached a peak on February 20, when the U.S. Supreme Court delivered a major setback to President Donald Trump’s economic agenda, ruling that his use of the International Emergency Economic Powers Act of 1977 to impose tariffs on imports was invalid.
Markets reacted in familiar fashion. Stocks initially climbed following the Supreme Court’s decision before plunging sharply in the following days— another example of the headline-driven whiplash that has defined the investment landscape. Other factors, such as AI-disruptions have influenced market volatility.
But tariffs are only one piece of a broader shift. Institutional investors increasingly describe Trump’s second term, so far, as defined in markets not by a single policy risk, but by volatility itself.
“We have definitively entered into a higher policy uncertainty and policy volatility regime since early 2025,” says Ruben Hovhannisyan, a generalist portfolio manager in TCW’s fixed-income group. “This is not a short-term episode.”
Against that backdrop, the central challenge for institutional investors is behavioral: How can their portfolios avoid allowing headline shocks, political noise and valuation complacency to undercut long-term outcomes?
Tariffs are just one driver of volatility. From Trump’s recurring remarks about acquiring Greenland, a territory of Denmark, to ongoing questions about the Federal Reserve’s independence and simmering tensions with Iran over access to nuclear material, a host of unpredictable developments have kept markets on edge.
Steady policy signals are no longer given, yet institutional allocators still need to manage their portfolios for the long term, diversify and stay agile. The consequences of knee-jerk reactions to short-term turbulence—and changes that are often quickly reversed—can mean significant losses. In this climate of unpredictable policy, vigilance and discipline are paramount.
“Financial markets never sleep—developments happen every day,” Hovhannisyan says.
Tariff Uncertainty, Dollar Weakness
While the Supreme Court’s decision clarified that Trump cannot not rely on IEEPA to unilaterally impose tariffs, significant uncertainty remains regarding the broader legality and limits of his tariff approach.
The effective tariff rate dropped to 13.7% from 16% after the Supreme Court nixed the IEEPA tariffs, according to the Yale Budget Lab model, as Trump claimed authority to impose tariffs under a different provision, Section 122 of the Trade Act of 1974. That authority expires after 150 days, meaning the effective tariff rate could then fall back down to 9.1%, according to the Yale Budget Lab.
Nonetheless, Trump has made it more than clear that his tariff policies will continue.
“The tariffs are going to be here in some shape or form,” says Alex Durante, a senior economist at the Tax Foundation. “They’re not going to go away over the president’s term.”
Durante adds that the $264 billion in tariffs collected for the federal government would make it likely they will continue even if a Democrat is elected president in 2028.
However, the Supreme Court’s decision requires that revenue be refunded, leaving lower courts to handle the resulting complications.
Volatility as Opportunity vs. ‘Lofty’ Valuations
Regardless of the future, tariff policy has already had major effects.
Economists say that if other countries do not fully retaliate, tariffs typically lead to the levying country’s currency appreciating or to the currencies of trading partners depreciating. The actual outcome has diverged from this expectation: As of January, the U.S. dollar was 6.3% weaker than its December 2024 average.
“We have been underweight on the U.S. dollar since late 2024—and expect further depreciation,” Hovhannisyan says.
While policy uncertainty creates discomfort, it also creates dispersion.
“Active approaches always have their place—but they shine more during periods of volatility,” Hovhannisyan says. “It is volatility that creates opportunity.”
However, Marc Seidner, PIMCO’s CIO of nontraditional strategies, sees complacency as the key risk in today’s markets. He warns that equity market valuations are “quite lofty” and that recent weeks have demonstrated how quickly segments can dramatically reprice. Seidner emphasizes taking a structural approach: Remain disciplined on valuations and focus on risk, particularly disruption risk.
Real Assets and Rotation Beneath the Surface
Despite the uncertainty, U.S. equity indexes remain near historic highs. However, some investors warn of the concentration risk embedded in major indexes, especially as uncertainty abounds. Roughly 40% of the S&P 500 is concentrated in 10 stocks, which primarily consist of technology companies.
“When I look at something like the S&P 500, by virtually every measure, valuations look incredibly stretched,” says Vince Childers, head of real assets multi-strategy at investment manager Cohen & Steers.
In contrast, Childers argues, many real assets trade at steep discounts to global equities and offer structural inflation sensitivity.
Gold traded at $5,227.40 per ounce on February 23, the first full trading day after the Supreme Court’s tariff decision—an increase of 2.38% on the day. This rise reflects investors’ ongoing preference for gold as a safe haven amid heightened uncertainty.
Real assets have quietly outperformed, Childers says, which could benefit investors as a form of diversification. Childers says his portfolio delivered roughly 24% over the past 12 months, compared with about 14% for U.S. equities.
“It’s always a good time to be diversified,” he says.
As for battling the headlines, or what policy decision might be the next to swiftly move markets, Childers’ advice is simple: “Don’t be heroic and think you have an edge on policy uncertainty,” he says. “Instead, control the controllable.”
Tags: concentration of risk, Governance, market volatility, Real Assets, tariff, valuations