End of 90-day tariff pause nears: What could happen next and one thing investors should do

As July 9 draws closer, the end of the 90-day pause on higher US tariffs threatens to unleash new waves of market volatility and uncertainty. After a dramatic selloff triggered by the Liberation Day tariff announcement in April, global markets staged a remarkable recovery. However, with trade talks still far from settled, investors face a crossroads - and the next move is critical.

Dan Coatsworth, investment analyst at AJ Bell, warned: "There is the potential for a market wobble if we don't get substantial progress with trade talks over the next few days. Only a handful of countries have struck framework deals so far, suggesting there isn't enough time for everyone to reach an agreement before the July 9 deadline." The Liberation Day tariff announcement sparked an 11% plunge in the FTSE All-World index, yet the market bounced back in just 30 days, now trading 10% higher than before the selloff.

This rapid recovery stands in stark contrast to other major selloffs, such as the 190-day rebound after the 2022 Covid crash or the year-long climb following the 2015-2016 China crisis.

Mr Coatsworth continued: "Markets can overreact as investors try to second-guess what's going to happen, and many people often take the extreme view - fearing the worst.

"Following a knee-jerk reaction, we often see more rational thinking and that can help markets to rebound following a correction."

The 90-day tariff pause brought temporary calm by setting a 10% baseline tariff rate. But with the pause ending, Mr Coatsworth said: "Uncertainty could strike back with a vengeance if the market doesn't know the lay of the land for trade-related costs between the US and foreign trade partners."

Downgrades to global GDP forecasts and slashed earnings estimates, such as a 5.9% drop in S&P 500 earnings forecasts since Liberation Day, reflect growing caution among companies and consumers.

Trade deals have been reached with the UK, China, and Vietnam, though Mr Coatsworth noted that these agreements are limited and often skewed in America's favour.

Negotiations with other key partners like the EU, India, Canada, and Japan remain complicated by political tensions and conflicting interests. The EU, in particular, faces internal divisions between members eager for a quick deal and others demanding better agreements.

Mr Coatsworth said: "Ultimately, trade deals take months or years to flesh out, and are certainly not wrapped up in 90 days. Even so-called 'done' deals such as that with the UK are only framework agreements."

Looking ahead, President Trump's penchant for brinkmanship means last-minute extensions or partial agreements could be possible.

The recent extension of talks with Canada signals a willingness to bend deadlines if progress is within reach. However, if tariffs revert to the higher Liberation Day levels for multiple countries, markets could face renewed pressure as investors factor in weaker earnings and slower growth.

For investors, the best advice is to remain calm and avoid panic selling, according to Mr Coatsworth.

He said: "Investors might want to sit tight and ride out any volatility as history suggests markets bounce back from selloffs."