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Investment Update – 13th March 2025
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| In early January we sent out an e-mail to all clients that set out our investment views for the year ahead. In the e-mail we explained our reasons for believing that a Trump Presidency would be business positive in light of his plans to reduce taxation, his intentions towards de-regulation and his intention to lean towards the use of fossil fuels again. The primary concern we had revolved around Trumps potential use of tariffs and the potential impact that this would have on the global economic outlook.
The last 4 weeks has seen significant market volatility on the back of an application by the Trump Administration in rolling out tariffs. This has sparked a tit for tat retaliation from those countries being impacted most, primarily Canada, Mexico and China. There has been no clear and consistent messaging from the President about the tariff policy and in some cases tariffs that he has announced have been withdrawn within hours. Businesses need clear direction to allow them to make long-term business decisions and what is happening at present is de-stabilising, which has led to the equity market volatility we have seen.
At times like this it is appropriate to look at fundamentals to see what the data is telling us. The bigger picture points to a resilient global economy. Corporate profits were generally better than expected in the last quarter of the year (75% of large cap S&P 500 companies exceeded earnings expectations – Source: HSBC Asset Management March 2025). Inflation has not gone away but looks unlikely to spike significantly from current levels unless tariff policy is now an embedded economic tool, many Central Banks have kept interest rates relatively high so there is scope to stimulate economies by reducing rates if the tariff strategy impacts growth expectations. The caveat to mention here is that rates could also rise if tariffs drive inflation upwards.
In short, we think the correct strategy to adhere to is to stay invested through the volatility cycle, as this has proven to be the most efficient way to protect value on a longer-term basis. The current volatility has been driven more by a change in sentiment rather than a negative shift in fundamentals. |
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