Monthly comment

April was dominated by renewed US-China trade tensions. On April 2nd, the US announced a 10 percent global tariff on all imports into the US, alongside steep ”reciprocal tariffs” of up to 145 percent specifically targeting imports from China. The average tariff rate on imports to the US thus reached its highest level in over a century.

The escalation triggered a broad-based market reaction, and the S&P 500 was down 11 percent over the two following trading days and volatility rose sharply. While equity markets recovered almost entirely later in the month, sentiment remained fragile. A weaker US dollar helped cushion global declines from a US investor’s perspective.

The sharp increase in tariffs caused several banks to revise down their GDP outlooks. Some retailers, including Walmart and Target, continued to import from China despite the higher duties, which could result in higher consumer prices and weaker retail margins going forward. JP Morgan CEO, Jamie Dimon, warned that prolonged tariffs could fuel inflation, reduce investments, and ultimately risk a recession. A 90-day pause for some tariffs was introduced late in the month, but uncertainty remained high.

US economy contracted in Q1

Preliminary GDP data showed a 0.3 percent contraction in the US economy during the first quarter, driven by front-loaded imports and inventory build-up. Inflation, measured as PCE, came in slightly above expectations. Despite the equity rebound toward the month-end, overall market sentiment remained cautious. Several equity strategists are warning that the market may test new lows if the economy continues to deteriorate. Overall, this complicates the Fed’s balancing act between inflation and growth.

Healthcare sector impacted by political uncertainty

April brought further signs of political instability in the US healthcare system. Several senior officials resigned and new cost-saving proposals were introduced. These developments are likely to reduce the FDA’s regulatory capacity and extend drug approval timelines. Proposed cuts to public healthcare programs were met with strong public opposition, though the Republicans continued to push for reduced spending.

Earnings season themes

Roughly half of the healthcare companies had reported by month-end. Results were slightly ahead of consensus estimates and showed some resilience. Common themes included the impact of tariffs, tariff exemptions by product class, US manufacturing announcements, and a more selective capital expenditure environment. Several large pharmaceuticals and some medical technology companies flagged their intention to increase domestic production, partly in response to political incentives, and partly to broader supply chain shifts.

Reflections

Interestingly, markets reacted more constructively to in-line with expected results during the earnings season. We interpreted this as a tentative but positive shift in sentiment, especially for small and mid-cap names, where valuations remained compressed.

Sector valuations remained attractive, and in some areas, they declined even further. Many small-cap biotech names continued to trade at near or below net cash levels. Selectivity remain key, with a clear divergence emerging between well-funded companies with strong development pipelines and those facing financing needs.

We are particularly focused on the obesity treatment landscape, where new data and shifting competitive dynamics are expected throughout the year. We also continue to see opportunities in the screening space, cardiovascular, and health enablers where there is potential for growing utilization.

Regulatory caution remains warranted

We remain watchful of developments within the US Department of Health and Human Services. Delays or changes in the regulatory process could impact several companies. That said, the long-term structural drivers of the healthcare sector remain intact.

We also expect increased M&A activity as larger companies need to bolster growth through acquisitions. Many large pharmaceuticals are facing patent cliffs and will need to supplement their pipelines. Once budget and trade uncertainties stabilize, we believe this could unlock a more active deal environment.