In November 2024, the research team dusted off the crystal ball, took a long hard look at stock market fundamentals, macroeconomic pressures like inflation, and the man on his way into the White House and predicted a bumpy ride for the year ahead.
At the time we wrote: "So, as we look ahead to 2025, what should investors expect? In a word – volatility."
While the timing of President Trump’s tariffs was uncertain, he had shown his intent to raise taxes on imports since his campaign trail. Numbers varied, language was inflammatory, but there was a consistent focus on certain countries – particularly China – and certain sectors, like car manufacturers.
Fast forward to April and while volatility could be the word of the year, whipsaw is the phrase of the week. At market close on 9 April, the US closed one of its best trading days of all time. Markets hadn’t rallied like this since before the financial crisis, with the tech-heavy NASDAQ index enjoying its second best day ever.
Just 24 hours previously, the US was on the brink of bear market territory, a sustained drop reaching over 20%, but Wednesday was euphoric. Thursday's open saw US markets fall slightly - the hangover from the previous day's party.
This article isn’t personal advice. Remember, investments and any income from them can rise and fall in value, so you could get back less than you invest. Yields are variable and past performance isn’t a guide to the future. If you’re not sure if an investment’s right for you, ask for financial advice.
What’s caused this rapid about turn?
The main factor is a 90-day reprieve for countries that didn’t raise their own tariffs from the some of the higher tariffs introduced last week. The result of these caused $9.5trn to be wiped off global stock markets. But not all nations will breathe a sigh of relief, for those that continue to battle the US in a trade war, the tariffs remain. For China this now means an eye-watering 125% tax on imports for goods bound for the US.
While investors can likely rest easier from further escalation for now, markets are still down on pre “Liberation Day” levels. Extremely punitive tariffs on the world’s second largest economy remain, and a 90-day break will end eventually.
Plus, markets seem to have missed that 10% base level tariffs still apply to all nations, regardless.
The only certainty we have gained in the last few days is the likelihood of continued uncertainty.
So how to navigate this rollercoaster?
For most investors the best course of action is to try very hard to ignore it.
Investing is a long-term endeavour, and while intra-day swings of this magnitude are unusual, markets are knobbly by nature.
Investors should make sure they’re well diversified, without too much invested in any one area, and with money spread across different asset classes and geographies.
Time in the market and diversification have consistently been the foundations of successful investing strategies and that isn’t going to change no matter how much market noise there is.
Opportunities in the noise – what’s next for investors?
For investors with cash to deploy, consider your existing investments first.
Diversification in market climates like these is essential, holding a mix of asset classes and sectors in your portfolio adds resilience.
Though difficult to navigate, it’s also worth remembering that volatility isn’t always a negative. It can create opportunities, and there will always be winners as well as losers.
As always with investing, these should be part of a portfolio that’s well diversified across different regions and types of investments, like shares, bonds and commodities.
It’s also important to remember that timing markets is notoriously difficult.
For long-term investors, while shorter-term volatility in markets can be very uncomfortable, often the best course of action is to sit tight and ride it out.
Here are three themes we see opportunity in.
Bonds
We remain bullish on bonds for 2025.
We have been in a higher for longer era, but we think yields could be cut in future – particularly if tariffs cause economic growth to soften. Of course nothing is guaranteed though.
By looking at bonds now there’s potential for capital gains as yields fall, as well as being rewarded with inflation-beating income in the near term and the potential to diversify portfolios.
Gold
In times of uncertainty, one investment which has tended to do well is gold.
It holds a perceived status as a ‘safe haven’.
Gold has already rallied more than 17% year to date and while we do not consider that this trajectory will continue, we do think gold can add much needed diversification to portfolios in times of uncertainty – particularly for investors looking for capital preservation.
US Smaller Companies
We see potential for growth in US smaller companies, poised to benefit from deregulation, and lower corporate and personal taxes – when Trump chooses to press play on those campaign promises.
Lower corporate taxes are good for corporate earnings, and therefore potentially beneficial to share prices. Lower personal taxes could stoke demand for goods and services. Smaller companies are also less likely to be exposed to global supply chains impacted negatively by tariffs – but there’s a risk that hiking trade taxes will hurt universally anyway.
Remember, smaller companies are higher-risk investments and can be more volatile than their larger counterparts.
Article image credit: Chip Somodevilla / Getty Images.