The second Investment Strategy Quarterly of 2025 takes the lid off some of the big themes in global investments at the moment, including the Trump effect across tariffs, deregulation, deportations and more, as well as options for UK market resilience in the face of challenging times. We also take a look at potential strategies for Europe and the case for industrial metals.
Read all this and more in Investment Strategy Quarterly: Markets on the Clock.
The start of 2025 has proved challenging for US equities, after two years of exceptional performance. It has been the worst quarter relative to global excluding US equities in over twenty years as investors seemingly became nervous about high valuations, increased global uncertainty and a deteriorating growth outlook. It wasn’t just US equities that struggled, with small and mid-cap equities continuing to face selling pressure. UK mid cap stocks underperformed their large cap counterparts by over 10% in the first quarter.
Economic data took a back seat this week with investors focus firmly on “Liberation Day”, where Donald Trump announced a raft of tariffs aimed at reducing the US trade deficit, raising revenues and supporting American produced goods. The tariffs have been far reaching with a minimum 10% tariff on imports coming into the US. The uninhabited Heard & McDonald Islands were even included in the tariff list. While it has been no secret that Trump was keen to implement tariffs, equity markets took the official confirmation of tariffs badly, with trillions of dollars wiped from markets on Thursday. The impact of Trump’s reciprocal tariffs are hard to know at this stage, and there are likely to be retaliatory tariffs on the US announced in the coming days. There is also the prospect that some nations will negotiate deals with the US, while there are even musings that US courts could potentially look to block the imposing of tariffs. Whatever views are on Trump and his administration’s tariff policy, it seems clear they are serious about tariffs and see them as a mechanism to address their budget deficit through raising external revenues, to stimulate their domestic manufacturing base through the re-shoring of production and potentially strengthening foreign currencies, which they view as too cheap. Their approach seems fraught with danger, and the job will be made harder if economic growth is hit too much, something that must be now a possibility as global growth slows due to tariffs and the associated uncertainties this brings. We have already seen business and consumer sentiment deteriorate over Q1 and this is only likely to continue in the coming months.
Global equity markets sold off heavily on Thursday after Trump’s announcements on Wednesday evening . Ironically it was the US equity market that was one of the worst hit, with the main index falling over 4%, and the tech-heavy and small cap indices falling over 5%. There was over $3 trillion wiped from US equity markets. Historically, risk-off markets have normally seen the US Dollar strengthen, however, we saw the US Dollar fall against a range of currencies, including the Euro, Japanese Yen and Sterling. Here in the UK we saw equity markets fall around 2%, with cyclicals bearing much of the pain. The bright spots in equity markets came from sectors such as utilities and consumer staples which are more traditional defensive sectors, with much less cyclical business models. Weakness in equities spilled over into Friday, with Asian and European markets declining further. The move down was accelerated by the news that China has put retaliatory tariffs of 34% on all US imports, starting 10th April. There is an expectation that we will see a similar response from Europe in the coming days.
While equities declined, fixed income markets offered investors some reprieve, with government bonds rallying. Given tariffs are expected to have a negative impact on global growth, investors are now pricing in increased interest rate cuts in developed markets, which has supported government bond prices. Here in the UK, there is now a 90% probability of a rate cut at the next Bank of England meeting in May. Over in the US there is expected to be 3-4 interest rate cuts in 2025 and this has led to the yield on the 10-year government bond falling below 4%.
Commodities have come under pressure driven by deteriorating growth outlooks. Crude oil has fallen around 7% on Thursday and Friday, falling to $62 a barrel. Lower oil prices should ease some inflationary pressures in the system and help businesses and the consumer over coming months through lower energy and petrol prices.
The week ended with key US employment data, the monthly release of US non-farm payrolls. Data was positive, showing 228,000 jobs had been added to the economy, considerably ahead of consensus. While labour data can be considered a lagging indicator, it will please investors to see such resilience.
It has been a very challenging week, with the official confirmation of US tariffs sending equities into a tailspin. We are in the eye of the storm presently and making big investment decisions at moments of stress are fraught with behavioural danger. The world can feel very uncertain, but volatility can create opportunities, particularly for long-term investors. Within portfolios, while being unable to avoid drawdowns, we have been able to limit downsides through a diversified approach in our equity bucket (not simply having a one-way bet on the US equity market and US Dollar), and we have exposure to assets that have risen over recent days, such as government and corporate bonds and infrastructure equities. With investor emotions running high, it is important to take a balanced approach to investing and weigh up both potential risks, but equally opportunities. It’s clear that many assets have become meaningfully cheaper over the last 48 hours, however, there are now new risks to consider, which potentially changes the make up of global trade going forward.
Andy Triggs, Head of Investments
Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.
Our Spring Statement article highlights the key points from the Chancellor’s recent announcement, outlining what it means for you ahead of the upcoming tax year.
With the current US administration seemingly taking a sledgehammer to established norms, our European Strategist, Jeremy Batstone-Carr considers the potential effects of tariffs, changing international relations, domestic increases in defence spending and more, on investments.
Trump’s tariffs were perceived as strong bargaining chips and by Monday afternoon Trump had gained the upper hand. Following phone calls with both Mexican president Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau, he announced that the tariffs would be postponed for 30 days. Mexico agreed to send 10,000 soldiers to the border to prevent drug trafficking from Mexico to the US. Canada followed suit a few hours later with the implementation of a $1.3billion plan to reinforce the Canadian-US border with new transport, technology and extra personnel in order to stop drug trafficking and illegal migrants.
Markets sold off sharply at the open on Monday morning in response to the initial news with equity markets falling almost 2% and the US Dollar strengthening. Trump also hinted that the EU would be next to face tariffs but did not specify a timeline, while the UK was set to potentially be “spared”. Fund managers have called Trump’s period in power “chaos” but on the other hand, he seems to be fulfilling his promises.
That’s enough Trump talk, but we do remain in the US as Alphabet (Google’s parent company) released their Q4 2024 earnings on Tuesday. Earnings per share rose to $2.15 but fell short on revenue at $96.47billion. Capital expenditure, which leaned heavily towards “technical infrastructure” rose to $14.28billion. Cloud revenue growth disappointed as it decelerated in Q4, rising 35% in Q3 but only 30% in Q4 to $12billion. Alphabet shares fell almost 8% on the day, but CEO Sundar Pichai spoke confidently following the earnings releases about the opportunities ahead, stating capital expenditure would rise by $75billion in 2025 to “accelerate progress”.
We’ve had the first US Non-farm payrolls print of the year, with 143,000 jobs created in January. There were strong payroll figures to end 2024 with 261,000 jobs created in November & 307,000 jobs in December. Market expectations were for a slowdown to 170,000. The unemployment rate also moderated to 4% from 4.1% the previous month. With soft labour figures for the month, the US Federal Reserve will certainly consider the data; however, they have signalled they will act cautiously given the uncertainty around government policies.
It was a unanimous decision on Thursday in the UK as all nine monetary policymakers agreed to cut rates. The Bank of England (BoE) cut rates by 25bps (0.25%) to 4.5%, marking just the third cut since August 2024. Despite a slight resurgence in inflation over Q4, December’s inflation figure bucked the trend, falling to 2.5%. Growth in the UK has been weak, which is why members Catherine Mann and Swati Dhingra favoured a larger cut of 50bps (0.5%) to 4.25%. Governor Bailey stated that the BoE would “monitor the UK economy and global developments very closely”. Markets reacted positively, with the FTSE 100 up over 1% for the day and the more domestic FTSE 250 up over 1.5%. The large cap index has once again made new all-time highs this week, although more domestically facing equities are lagging, despite a recent resurgence.
In a week full of ups and downs, gold prices rose to a new all-time high of $2,895, driven by safe haven demand following the tariff situation earlier this week. Investors flock to gold as a hedge against market volatility and economic uncertainty. Other safe haven assets such as government bonds have also enjoyed a better time of things of late, in part driven by more dovish positioning from central banks, coupled with increased geopolitical uncertainty, pushing investors to perceived safer assets.
News flow for 2025 has appeared very challenging, yet we have seen a range of equity markets pushing higher. It’s a reminder of the dangers of trying to time markets. Portfolios remain well diversified both at an asset and country level, which we think is the prudent approach over the coming years.
Nathan Amaning, Investment Analyst
Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.
Jeremy Batstone-Carr, Raymond James European Strategist, takes a deep dive into some of last month’s destabilizing activities including the potential ramifications of the new US administration’s campaign promises and the recent upset in the technology sector generated by China’s norm-busting AI model, DeepSeek.
Our first Investment Strategy Quarterly of 2025 brings insight and opinion including 10 themes to watch out for in the US this year, what we think we might expect from Trump 2.0, potential effects on the energy market as focus moves from geopolitics to the electric grid, what we know (and don’t know) about uncertainty, plus where (and how) there may be economic growth this year.
Read all this and more in Investment Strategy Quarterly: 2025 Outlook
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Our European Strategist, Jeremy Batstone-Carr considers the potentially seismic effect of the US election result on global markets, and China in particular, including some possible effects of the much-touted trade tariffs that have been promised for the coming year. And as the effects of the UK Budget become clearer, what is the potential for domestic inflation?
With the long-awaited UK Budget and the US election now upon us, Raymond James’ European Strategist, Jeremy Batstone-Carr, considers the potential effects of tax rises and increased public investment (as well as an increase in borrowing), along with some thoughts on the direction of the markets post-election.