As we navigate the early months of 2025, we want to address the significant geopolitical and economic developments that are likely on your mind. President Trump’s return to office has brought new policies and trade approaches that have created notable market volatility. You may have questions about how these developments—particularly the new tariff policies affecting Canada, Mexico, and China—might impact your investment portfolio.
The Current Landscape
The early weeks of the new Trump administration have been marked by:
- Implementation of substantial tariff policies—25% on Canada and Mexico, and an additional 10% on imports from China (bringing the total level of tariffs on China to 20%) along with a range of other restrictive trade practices
- Bond market volatility with yields initially spiking before stabilising
- Equity market fluctuations, particularly in the technology sector
- Retaliatory tariffs announced by other countries
- A strong push away from sustainable and inclusion practices
These trade measures were specifically mentioned during the campaign, yet many market participants didn’t believe they would actually be implemented, viewing them as negotiating tools or opening gambits. This miscalculation has contributed to the market’s reaction.
Analysis and Market Outlook
Interest rate risk and global business conditions are buffering now fragile markets, though credit markets remain relatively stable.
Bond yields have declined despite inflation risks, indicating the bond market’s concern about US growth prospects. The Federal Reserve is still expected to cut rates by approximately 70 basis points during 2025, which is surprising given inflation threats.
While lower bond yields and anticipated rate cuts might appear positive, they appear to be reflective of an upcoming economic slowdown. This poses challenges for the US equity market, which has surged since late 2023 and depends on strong earnings growth to sustain its valuation.
While many equity markets typically decline alongside US downturns, markets outside the US may demonstrate greater resilience due to different valuation starting points.
Negative momentum in markets coupled with deteriorating liquidity cycle conditions, could also contribute to further volatility.
We start with the impact on the US Domestic equity markets, i.e. the S&P 500, Dow Jones Industrials Average and NASDAQ Composite indices.
In the chart above, we see the three key US stock indices had been trading sideways in the leadup to recent news. From 23-January, they have been unable to maintain positive momentum, buffeted by negative news concerning DeepSeek, signs of US Labor Market pressure and sticky US inflationary measures, reducing the chances of rate cuts by the Federal Reserve. From 19-February there has been constant downward pressure on US stock markets with a slight recovery attempt seen in the last two working days in February. This was however short-lived given the recent announcement of the tariff details.
Investment Philosophy in Action
In times of market uncertainty, it’s crucial to stay grounded in our core investment principles. These principles continue to guide how we manage your portfolio, especially in light of recent market developments:
The importance of long-term Strategic Asset Allocation
We believe the majority of your investment returns and risks come from how your portfolio is allocated across asset classes. While timing and specific investments can influence outcomes, predicting market highs and lows is nearly impossible. That’s why maintaining a long-term strategic asset allocation tailored to your goals is essential.
Given the current market volatility, we want to reassure you that your portfolio is designed to navigate these fluctuations. There’s no need for immediate changes—everything is on track, and we’re focused on the long-term strategy that is built to handle short-term movements.
Evidence Based Portfolio Construction
Our approach is grounded in solid academic research, which allows us to build a portfolio aimed at long-term success. By emphasising areas of the market with higher expected returns over time, we ensure that your portfolio is positioned for growth while managing risk effectively.
In times like these, it’s important to trust this evidence-based strategy. While short-term market changes and geopolitical events can create uncertainty, we remain focused on the long-term picture and avoid reacting to the noise of the moment.
Benefits of Diversification
Spreading investments across various regions and sectors reduces risk and enhances potential returns. Diversification helps protect your portfolio from the impact of any single underperforming investment.
Especially in volatile periods, diversification provides balance, ensuring your portfolio remains resilient. This approach reduces reliance on any one area, allowing us to weather both domestic and global market turbulence.
Strategy over Emotion in Investment Decisions
Rather than acting on short-term market emotions, we stay focused on our well-planned strategy. While it’s natural to feel concerned during volatile times, we focus on the things we can control—such as managing costs, diversification, and keeping your asset allocation aligned with your long-term goals.
Even in times of uncertainty, it’s important to trust the strategy we’ve put in place. Your portfolio is built to weather short-term fluctuations without needing to make knee-jerk decisions, keeping you on course to achieve your long-term financial objectives.
Looking Forward
In summary, we have a cautious market view, though not bearish, as the global easing cycle is expected to continue throughout 2025. Despite rumours of potential tariff reductions with new trade agreements, market uncertainty will persist in the near term, complicating growth forecasts. All equity markets will likely be affected by US market movements, though markets outside the US appear better positioned to demonstrate resilience.
