Market commentary: Feb 2025
Investment performance
Overall returns have been good over the last year largely driven by the US share market which continues to outperform global markets. The US economy is seen as resilient, and company earnings are strong. Lofty investor expectations for future growth in artificial intelligence are pushing share prices higher and higher. Over hyped? It’s the usual investment cycle so very likely. In response we have moved portfolios to a more conservative position (reducing exposure to share markets) and another move is imminent.
Where to invest under Trump 2.0
One month into President Trump’s second term, investors are spinning from one news announcement to the next. It’s a constant stream ranging from import tariffs to massive Federal cost cutting. All in the name of making America great again! Centre stage are executive orders impacting companies from aerospace and defence to industrials and banking.
“America first”. An industrial renaissance? The US is moving from a philosophy of free trade to one of protectionism and that means tariffs are likely here to stay.
America first policy aims to increase manufacturing jobs and regrow the manufacturing base the US established in the 50s and 60s. Beneficiaries may include construction and industrial companies tied to the building of data centres, motor vehicle manufacturers, and pharmaceutical companies. For example, Caterpillar could see an increase in demand for its construction equipment.
More companies not based in the US may emulate Taiwan Semiconductor manufacturing company by establishing manufacturing operations in the US to access the US market.
Deregulation could accelerate innovation. Trump policies could accelerate innovation in Artificial Intelligence (AI) leading to an increase in development of robotics for application in industry and consumer sectors. Companies in the health care sector could benefit from deregulation of stem cell research and robotic surgery.
Trump is pushing for a broad increase in defence spending by countries in Europe which could benefit European exposed aerospace and defence companies.
What’s ahead for investors? President Trump has implemented several policy changes that are likely to have lasting and complicated impacts on society and business. We are mindful of the risk that these policies could have unintended consequences, and the potential for heightened volatility in share prices. The level of uncertainty is raised.
We remain focussed on diversification and investing for both growth and capital preservation. Our fund managers are looking at both the favoured and the forgotten, finding opportunities to invest in technology leaders as well as financials, industrials and energy companies.
This article is my summary of market insights authored by Capital New Perspective Fund.
Richard Grimes, CERTIFIED FINANCIAL PLANNER (CFPCM), Director and Financial Adviser