Since our last Lowdown last month, heightened trade tensions, particularly due to US trade policies, have been a source of volatility and have hit Wall Street hard. Global markets have also been impacted, albeit to a lesser degree. The S&P 500 Index has dipped into correction territory – it is now down 10% since its 19 February 2025 high. Similarly, the tech-heavy NASDAQ Composite Index and the small-cap index Russell 2000 have also suffered double-digit declines over the same period. However, despite the sharp pullback in US equities, a number of value and cyclical sectors have managed to outperform as nervous investors discard their growth stance in favour of a more defensive posture. Healthcare, utilities, consumer staples, energy and materials, for example, all find themselves up, while tech-momentum sectors (information technology and consumer discretionary) have fallen.
Other safe-haven asset classes – such as bonds and gold bullion – have been in demand of late. Gold recorded yet another new record high last Friday morning, briefly eclipsing the US $3000 per troy ounce level. Silver also rallied, topping the US $34 per ounce level, and approaching its highest value in five months.
Gold is often highly sought-after in times of economic instability. The escalating trade war between US and many of its largest trading partners has unsettled financial markets, raising concerns over the impact on economies and consumers the world over. The yellow metal is also seen as a hedge against inflation: its value often increases when the purchasing power of fiat currencies declines.
Furthermore, central banks – which have been buying gold – use this relationship to protect their massive currency reserves. As a general rule, gold buying increases when central banks are expecting inflation to rise.
The Wall Street pullback comes as the markets contend with a number of concerns. US economic growth seems to be shifting into a lower gear; indeed, the data for the first quarter of this year seems to point to softer consumption, with consumer sentiment surveys also indicating some weariness in overall confidence. This softening in the US economy comes at a time when uncertainty regarding government policy remains high. Tariff insecurity is now the prevailing backdrop – not just for consumers, but for corporations that maybe delaying spending or capital-market activity until more clarity emerges.
For a number of years, the S&P 500 Index has soared above the stock indices of other countries, and market valuation indicators have shown for some time that the US stock market has been fairly extended from a valuation perspective. This is particularly the case among the mega-cap technology stocks.
But since Trump returned to the White House, it has fallen by around 6% and is now trailing other major markets in Europe and China. Remember– Trump had pledged to create an “age of American exceptionalism”, with policies crafted to put the US first, ahead of other nations.
However, his policy moves in the early days of his administration have had the opposite effect, and the US stock market has shown its distaste for them. Many of its investors have reacted by rotating away from the higher valuation parts of the market, and into the more defensive parts, adding downward pressure on US stock-market returns for the early part of 2025.
Some asset allocators are now suggesting that it is time to look outside the US for investment opportunities. Indeed, we have already seen some double-digit gains in other markets and indices (the Hang Seng in Hong Kong, Germany's DAX and France's CAC 40).
Bear in mind that stock market pullbacks are normal: in any given year, we tend to see one to three corrections in the 5% to 15% range. We do not yet see any prospect of a deep or prolonged bear market, particularly since we do not expect an imminent recession in the US. Therefore, we advocate “buying on the dips” – corrections in the market should be leveraged as investment opportunities.
Trump’s tariff tantrums and retaliation from Canada, China and Europe have initiated a rotational backdrop among investors.
After two years of strong performance in the US stock market– driven primarily by mega-cap technology and AI sectors – diversification away from Wall Street has been an important theme for portfolios: the MSCI World (excluding the US Index) is up by 4.65% while the MSCI World Index (including the US Index) is down by 4.13%. Investors are now wondering if this is set to continue throughout the year. Or will Wall Street rally back as it has done so many times before?
Tit-for-tat tariff are the problem: Trump recently imposed a 25% tariff on all steel and aluminium imports to the US. There were no exemptions, with the tariffs designed to protect US manufacturing and bolster jobs by making foreign-made products less attractive. The EU immediatelyretaliated, announcing tariffs affecting €26 billion worth of US goods starting on 1 April. The Euro bloc’s tariffs will not only impact US steel and aluminium products: textiles, home appliances and agricultural goods will also be hit. Meanwhile, Canada has also announced retaliatory tariffs of 25% on US goods, amounting to some C$29.8 billion. These came into effect on Thursday morning last week. Trump responded in kind, announcing 50% tariffs on Canadian goods, before withdrawing his threat and keeping the tariff increase at 25%.
Finally, he threatened to raise a 200% tariff on any alcohol imports. This threat was a response to the EU’s plans for a 50% tax on imports of US-produced whiskey as part of its retaliation to Trump’s tariffs on all steel and aluminium imports to the US. Trump then called for the immediate removal of the EU’s “nasty” tariff on US whiskey, referring to the Euro-bloc as “hostile and abusive”, and “formed for the sole purpose of taking advantage of the United States”. Many economists argue that tariffs create market distortions that harm domestic consumers over time: while importers initially pay tariffs to their government, economic research suggests that these costs are largely passed on to the consumer.
The UK economy contracted in January, a blow to Rachel Reeves ahead of her Spring statement scheduled for 26 March 2025. The January data showed that the economy shrank by 0.1% month-on-month, below the 0.1% expansion predicted by economists, and December’s slowdown in manufacturing is seen as one of the main reasons for the dip. Furthermore, UK consumers appear to be reining in their spending. Retail sales growth slowed again in February as poor fashion sales impacted non-food spending – that’s according to data from the British Retail Consortium (BRC) and KPMG.
Since the financial markets peaked on 19 February 2025, we have seen a significant increase in volatility driven by trade tensions, inflation concerns, geopolitical risks and economic policy uncertainties. Despite some positive corporate earnings reports, and sector-specific recoveries, market sentiment is downbeat, with global investors increasingly seeking the protection of safe-haven assets such as defensive stocks, government bonds, currencies, gold and cash deposits.
Don’t give up hope on this bull market just yet. Hold your nerve, tune out this (admittedly rather raucous) short-term noise and focus on your long-term time horizon. Oh – and buy on the dips!
