The US stock market looked poised for a positive start to the year as it reacted favourably to Donald Trump entering the Oval Office.
The president's proposed policies of deregulation and tax cuts were seen as a boost to keep the US market strong. However, fears of tariffs, inflation, and a slowdown have rocked the market.
Despite tariffs being a key policy for Trump, not many expected him to be so aggressive with his trade agenda. As anticipated, he targeted China and Europe first, but unexpectedly, close neighbours Canada and Mexico were also in the firing line.
Both Canada and Mexico were able to delay Trump’s tariffs for 30 days just before they were due to come into effect. But at the time of writing Trump has now advanced plans. To add to the uncertainty, Canada, Mexico, Europe, and China have since retaliated with tariffs of their own.
There were already concerns that tariffs would be inflationary as businesses pass on costs to consumers. However, the tit-for-tat trade war has now left businesses and consumers equally concerned as they deal with the uncertainty.
Consumers are hesitant to make purchases due to price uncertainty, and businesses are unwilling to invest amid the unpredictability. The knock-on effect is concerns of a nationwide slowdown.
One part of the Federal Reserve (Fed) now expects a slowdown in the first quarter of the year. Additionally, the number of new jobs added in February fell below expectations, and even the president has expressed uncertainty about whether the country will enter a recession or if inflation will fall.
How have tariff trade wars affected the stock market?
Initially, markets responded well to Trump's election win, but now all those gains have been erased.
Tech and the consumer discretionary sector have been hit hard as investors worry about consumers spending less and future inflation.
It's not just large global companies that are affected though.
Domestically-focused smaller companies in the US have also been volatile. These companies were seen as big beneficiaries of Trump's protectionist stance, but they’re often the most sensitive to inflation and interest rate changes. With market uncertainty, many are hesitant to invest in their businesses until there’s more clarity.
Despite the concerns that tariffs would impact inflation, February inflation came in at 2.8%, which was lower than expected. However, only tariffs on China had impacted the February inflation report.
As we move through the year, the recent tariffs will have a larger impact on the inflation report. But this does give the Fed more room to manoeuvre if the US starts to slowdown. With inflation heading back in the right direction, further interest rate cuts could be back on the table.
How have the US Wealth Shortlist funds performed?
Investing in these funds isn’t right for everyone. Investors should only invest if the fund’s objectives are aligned with their own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.
This article isn’t advice. Investments and any income they produce will rise and fall in value, meaning you could get back less than you invest. If you’re not sure if an investment is right for you, ask for financial advice. Remember, past performance isn’t a guide to the future.
For more details on each fund and its risks, you can use the links to their factsheets and key investor information below.
The strongest performer of our Wealth Shortlist US funds over the last year was the Baillie Gifford American fund. The fund rose 26.82%* over the past 12 months, outperforming the IA North American sector average which returned 14.80%.
Our analysis shows that stock selection was the main driver of the fund’s impressive returns over the year. The manager’s investment in software company Cloudflare, food delivery company DoorDash and healthcare company Doximity were some of the biggest contributors to the fund’s strong performance.
The weakest performer over the past 12 months was FTF Royce US Smaller companies, returning 0.00%, behind the IA North American smaller companies sector average which returned 5.40%.
We don’t expect all the funds on the Wealth Shortlist to perform in the same way. We think it’s important for investors to build a portfolio filled with managers who have different approaches and investing styles to help generate long-term returns.
Annual percentage growth
29/02/2020 to 28/02/2021 | 28/02/2021 to 28/02/2022 | 28/02/2022 to 28/02/2023 | 28/02/2023 to 29/02/2024 | 29/02/2024 to 28/02/2025 | |
|---|---|---|---|---|---|
Baillie Gifford American | 120.08% | -31.73% | -23.08% | 31.44% | 26.82% |
FTF Royce US Smaller Companies Fund | 35.66% | 3.20% | 13.97% | 5.51% | 0.00% |
IA North America | 24.24% | 14.54% | 1.09% | 20.82% | 14.80% |
IA North American Smaller Companies | 39.11% | -1.13% | 2.58% | 5.95% | 5.40% |
Looking to use your ISA allowance before the 5 April tax year end deadline but not sure where to invest?
Here are three fund ideas to help you make the most of your ISA allowance, while navigating stock market uncertainty.