A key gauge of volatility in the S&P 500 has tumbled to its lowest since December, while stock markets from Tokyo to New York have rallied to record highs. The moves come only months after Trump sparked a dramatic market retreat by announcing his so-called Liberation Day tariffs in April.

Even though some countries have struck trade deals with the US, the average tariff rate has skyrocketed and many economists expect importers to pass additional costs on to US consumers, spurring inflation as the job market shows signs of weakness. Trump is meanwhile heaping pressure on the Federal Reserve to cut rates and seeking to install allies at the central bank.

What Bloomberg’s Strategists Say...

“We’ll see in the coming months just how much importers absorb tariffs through their margins. There is minimal sign of this so far, and unless there is a significant hit to margins, other burgeoning inputs to inflation are likely to keep it well supported.”

— Simon White, Markets Live Strategist. Click here for the full analysis.

Concerned that asset prices have surged in spite of these risks, Stopford has trimmed the defensive fund’s exposure to stocks over the past year to what he says is likely the lowest-ever level, at around 7.5%. At the same time, he has added exposure to sovereign debt “at the margin.”