Brendan de Jongh

As we enter the second quarter, the US equity market finds itself in correction territory following an initial surge post the presidential election of Donald Trump. 

Investors are now grappling with the rapid and often unpredictable shifts in US policy. The realisation that tariffs will be used as more than mere negotiation tactics has led to a re-pricing of risk in the markets. 

The likely effect is higher input costs and lower margins for US businesses, and increased prices for consumers. Growth uncertainty is reflected in soft data from consumer confidence and small business surveys, compounded by the risks associated with immigration controls and the layoff of thousands of government employees. 

The potential for stagflation in the US is becoming more pronounced, and markets are beginning to price in this risk. Despite these challenges, a more domestically-driven US economy could offer attractive long-term investment opportunities.

In contrast, European markets are demonstrating strong corporate results and improving sentiment, driven by lower gas prices and potential infrastructure spending. China is also positioned for growth, with advancements in AI and supportive policies, while Japan continues to benefit from reflation and structural reforms. Geopolitical tensions and policy risks remain critical considerations in constructing a well-diversified portfolio. Market volatility is expected to remain elevated as investors navigate the implications of the Trump administration's trade policies and protectionist measures.

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