Market commentary: Mar 2025
Investment performance
On 2 April (so called “Liberation Day”) Trump announced his long promised “reciprocal tariffs” setting off the biggest fall in share markets since the pandemic.
Fortunately, our client portfolios are somewhat sheltered as over the last 9 months we have positioned investments with the expectation of a market peak. Admittedly, US imposition of severe global tariffs wasn’t the anticipated catalyst! While the last 6 months of client’s returns have now been wiped out, returns for the last 12 months were positive.
Every action has a reaction
The Trump administration is upending global alliances, global trade agreements, and weakening democracy in America. To many observers, his first two months in office have felt like the total eclipse of America: a darkening of a leader the world has known since it entered WWII. To quote one commentator “Trump has taken a chainsaw to the international rule book”.
But as Newtons third law of motion tells us, every action has an equal and opposite reaction. The German Chancellor stated Europe should “achieve independence from the US”. The French president has raised the spectre of extending his country’s sovereign nuclear deterrent, to provide a security blanket for other European nations. Poland’s prime minister has developed plans for the military training of all Polish men. The day after the roughing up of Volodymyr Zelensky in the Oval Office, the UK Prime Minister rolled out the red carpet for him and made a point of hugging Zelenski on the steps of Downing Street.
While it’s impossible to accurately predict when a market crash will occur, we have been concerned for some time about the combination of elevated share prices in the US and high levels of optimism. We acted in July last year reducing exposure to global shares by 2% in all our client portfolios. Sharing the same concerns, our fund managers have taken a cautionary approach to investing in the US – heightened since the swearing in of Donald Trump on 6 January.
This has paid off as our client portfolios have fallen by 5% to 7% compared to the MSCI World index which is down 13.5% since 6 January. Positive returns for fixed interest and infrastructure investments have helped - demonstrating the benefit of diversification.
The “economic vandalism” wreaked by Trump is proving a test of investors nerves, but pressure is building on the President to get a grip on reality. Now is the time for cool heads, especially given the lessons of history where shares inevitably rebound following steep sell-offs. As always in a market like this there will be winners and losers creating opportunities for active managers as markets overreact.
Richard Grimes, CERTIFIED FINANCIAL PLANNER (CFPCM), Director and Financial Adviser