After two consecutive years where portfolios have benefited from strong double digit returns in US equity markets, much of it underpinned by the performance of the global mega-cap technology stocks associated with the ubiquitous artificial intelligence (“AI”) theme, recent weeks have seen the American markets stumble.
Initial reaction to Trump’s election in early November was positive with major US indices, such as the S&P 500 and the tech-focused Nasdaq 100, rallying strongly and marching to new highs in mid-January just ahead of Trump’s inauguration. The broadening of the AI theme through corporate America and the prospect of productivity gains, alongside an expectation that the incoming Trump administration would be pro-business with stated objectives of lower taxes and deregulation, were key reasons supporting a positive 2025 outlook for the US economy and markets.
Two significant factors have undermined these expectations more recently.
Firstly, Trump’s ‘shock and awe’ approach to policy generally with new and often inconsistent announcements being made daily; his unleashing of Elon Musk’s Department of Government Efficiency, ‘DOGE’ with the task of reviewing the efficiency of and making cuts to the Federal Government; and the launching (and often retracting) of tariff policies on America’s neighbours and others ahead of other pro-business economic policy. These have called into question the idea of American exceptionalism.
Secondly, the announcement in late January by Chinese company DeepSeek they had created an AI tool to rival those in the US, and that this had been achieved with much lower development costs. This called into question the very high valuations placed on companies such as chip manufacturer Nvidia.
What does this mean for investors? At the time of writing, our highest risk portfolios have retreated towards levels seen three months ago in mid-December with more cautious and balanced portfolios generally holding their ground year to date.
Our exposure to US markets within our risk-rated portfolios is currently in line with our benchmark allocation and complemented by a broad range of regional, sectoral and non-equity exposure as allocation constraints permit. The outlook for the US economy and corporate profits continues to be resilient, and at this stage we remain of the view that this initial chaotic phase of Trump’s presidency will ultimately give way to policies actively supporting American business while other regions continue to face their own significant economic challenges in an increasingly uncertain world.
Our Investment Committee is giving due consideration to the uncertainty and range of possible scenarios for global equity and other asset markets in this unpredictable environment where there is currently much noise and little signal. The purposeful chaos of Trump is having ramifications for asset prices globally in a time where longstanding alliances taken for granted are being undermined and the post-Second World War order is potentially unravelling. We are assessing implications for the outlook and relative value of key asset classes in this light and will make any changes to portfolios we consider appropriate following quarterly review in April.
Whilst market corrections such as those seen in recent weeks in the US and the corresponding volatility this brings to portfolios are invariably unsettling for investors, especially after the strong market rally of 2024, volatility is intrinsic to investment. Volatility rewards patient investors as equities have demonstrated with strong outperformance of other asset classes over time.
As things stand today, the recent decline in US markets remains smaller than the fall experienced in early August last year following rapid strengthening of the Japanese Yen. That trough was fully recovered by mid-September leading to further gains. There have been approximately 30 “corrections” of 5% or more in US markets since the Financial Crisis of 2009. This is an average of approximately two corrections per year and includes the major drawdowns such as Covid in 2020 and the ‘taper tantrum’ in late 2018. These events seemed to presage doom at the time but are now consigned to the annals of history. The total return of the S&P 500 in sterling terms since its March 2009 market low is in the region of 800% for a UK based investor.
These lessons from the past underpin our advice to clients that it is almost invariably best to remain invested through challenging periods in markets and to remain focused on longer term objectives. Attempting to time markets or avoid drawdowns is rarely rewarded with improved longer-term performance as market troughs are unpredictable and upside reversals usually very sharp.
We remain focused on monitoring political and economic developments and will respond accordingly with our advice. However, at the present time whilst the geopolitical situation is exceptional, the market volatility remains within normal trading ranges. Accordingly, our advice currently is to resist the temptation of hasty short-term decisions and to remain focused on the longer term growth potential of markets supported by technological innovation as well as a relatively benign outlook for inflation and interest rates.
Please note that the content on this page is based on our understanding and the available information; we cannot be held responsible for any errors, and you should not act on the basis of the information in these articles, nor do they constitute investment advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise. Overseas investments are affected by currency movements and exchange rates. If you would like investment advice on your individual circumstances, please do not hesitate to get in touch via telephone at 01392 875500 or email at info@SeabrookClark.co.uk.
Has the Positive Outlook for US Markets been Trumped?
Matthew Clark
After two consecutive years where portfolios have benefited from strong double digit returns in US equity markets, much of it underpinned by the performance of the global mega-cap technology stocks associated with the ubiquitous artificial intelligence (“AI”) theme, recent weeks have seen the American markets stumble.
Initial reaction to Trump’s election in early November was positive with major US indices, such as the S&P 500 and the tech-focused Nasdaq 100, rallying strongly and marching to new highs in mid-January just ahead of Trump’s inauguration. The broadening of the AI theme through corporate America and the prospect of productivity gains, alongside an expectation that the incoming Trump administration would be pro-business with stated objectives of lower taxes and deregulation, were key reasons supporting a positive 2025 outlook for the US economy and markets.
Two significant factors have undermined these expectations more recently.
Firstly, Trump’s ‘shock and awe’ approach to policy generally with new and often inconsistent announcements being made daily; his unleashing of Elon Musk’s Department of Government Efficiency, ‘DOGE’ with the task of reviewing the efficiency of and making cuts to the Federal Government; and the launching (and often retracting) of tariff policies on America’s neighbours and others ahead of other pro-business economic policy. These have called into question the idea of American exceptionalism.
Secondly, the announcement in late January by Chinese company DeepSeek they had created an AI tool to rival those in the US, and that this had been achieved with much lower development costs. This called into question the very high valuations placed on companies such as chip manufacturer Nvidia.
What does this mean for investors? At the time of writing, our highest risk portfolios have retreated towards levels seen three months ago in mid-December with more cautious and balanced portfolios generally holding their ground year to date.
Our exposure to US markets within our risk-rated portfolios is currently in line with our benchmark allocation and complemented by a broad range of regional, sectoral and non-equity exposure as allocation constraints permit. The outlook for the US economy and corporate profits continues to be resilient, and at this stage we remain of the view that this initial chaotic phase of Trump’s presidency will ultimately give way to policies actively supporting American business while other regions continue to face their own significant economic challenges in an increasingly uncertain world.
Our Investment Committee is giving due consideration to the uncertainty and range of possible scenarios for global equity and other asset markets in this unpredictable environment where there is currently much noise and little signal. The purposeful chaos of Trump is having ramifications for asset prices globally in a time where longstanding alliances taken for granted are being undermined and the post-Second World War order is potentially unravelling. We are assessing implications for the outlook and relative value of key asset classes in this light and will make any changes to portfolios we consider appropriate following quarterly review in April.
Whilst market corrections such as those seen in recent weeks in the US and the corresponding volatility this brings to portfolios are invariably unsettling for investors, especially after the strong market rally of 2024, volatility is intrinsic to investment. Volatility rewards patient investors as equities have demonstrated with strong outperformance of other asset classes over time.
As things stand today, the recent decline in US markets remains smaller than the fall experienced in early August last year following rapid strengthening of the Japanese Yen. That trough was fully recovered by mid-September leading to further gains. There have been approximately 30 “corrections” of 5% or more in US markets since the Financial Crisis of 2009. This is an average of approximately two corrections per year and includes the major drawdowns such as Covid in 2020 and the ‘taper tantrum’ in late 2018. These events seemed to presage doom at the time but are now consigned to the annals of history. The total return of the S&P 500 in sterling terms since its March 2009 market low is in the region of 800% for a UK based investor.
These lessons from the past underpin our advice to clients that it is almost invariably best to remain invested through challenging periods in markets and to remain focused on longer term objectives. Attempting to time markets or avoid drawdowns is rarely rewarded with improved longer-term performance as market troughs are unpredictable and upside reversals usually very sharp.
We remain focused on monitoring political and economic developments and will respond accordingly with our advice. However, at the present time whilst the geopolitical situation is exceptional, the market volatility remains within normal trading ranges. Accordingly, our advice currently is to resist the temptation of hasty short-term decisions and to remain focused on the longer term growth potential of markets supported by technological innovation as well as a relatively benign outlook for inflation and interest rates.
Please note that the content on this page is based on our understanding and the available information; we cannot be held responsible for any errors, and you should not act on the basis of the information in these articles, nor do they constitute investment advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise. Overseas investments are affected by currency movements and exchange rates. If you would like investment advice on your individual circumstances, please do not hesitate to get in touch via telephone at 01392 875500 or email at info@SeabrookClark.co.uk.
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