Good Afternoon
Since the beginning of the year, global stock markets have delivered mixed results, almost the inverse of recent years.
Initially, people were optimistic about the US economy with markets pricing it in. Economic policies under the Trump presidency were expected to be very favourable for markets, especially in the US. There was optimism on the proposed policies, in particular tax reform and deregulation. However, the agenda has centred on tariffs, immigration control and a reduction in government spending.
However, recently, stock prices in the US have fallen whilst other regions have delivered positive results. In fact, the US market entered a “correction”, down 10%. Here are some reasons why;
- US stocks, especially mega caps and technology stocks, had outperformed in 2023 and 2024 and expectations for further gains had pushed valuations to unsustainable levels.
- The US government imposed taxes on goods from countries like Mexico, Canada & China potentially making trade more expensive
- Elections in Germany, and the US’s mixed feelings about helping Ukraine have led European countries to spend more on defense, boosting the share price of defense companies in Europe. This has increased growth expectations for Germany and Europe.
- Positive news about Chinese companies have boosted their stock prices.
Put simply, expectations for the US market were very high and expectations for other markets very low, meaning it didn’t take much “bad news” to push US markets down or “good news” to push the likes of China & Germany to near bull markets.
As a result, US stocks, in particularly big tech companies have not performed well, whilst stocks in other countries, particularly China, Europe and the UK have done better.
So, what can we learn from this;
- Price Matters:
- Focusing on the difference between price & intrinsic value is crucial. Overpay and there is a greater chance of losing money in the long term.
- Uncertainty:
- It’s important to have a diverse mix of investments to handle unexpected market changes
- Robust Portfolios:
- Investors should prepare their portfolios to withstand different economic and market situations
- Don’t panic:
- Volatility can bring with it opportunities to enhance a portfolio and deliver long term returns.
What lay in the future:
Expect volatility over the next 6 months. The Trump administration has in the past softened aggressive policies when markets decline sharply, however, there will continue to be a sell off of US shares. Retaliatory tariffs are gradually being implemented by affected countries. Whilst this may lend itself to a trade war between the US and other countries (noting a global impact), it also presents new opportunities for diversification of trade with other trading partners. Policy makers in affected countries may look at targeted (and temporary) measures that may mean easier trade in the future.
As always, if you are concerned or have any questions, please contact our office on 1300 014 368 to discuss your individual portfolio. Our investment management partners continue to focus on quality assets and building robust portfolios, even in market uncertainty.
Enjoy the weekend!
The team @ FPD
