It’s fair to say that Trump 2.0 is back with a bang. In the immediate aftermath of his election, the US stock market rose to hit several new all-time highs in anticipation of a business-friendly agenda of less regulation and more tax cuts. Other risk assets such as Bitcoin also hit new all-time highs.
But over the last three weeks or so, the party has ended. The US stock market is down around 9%, back below its level when Trump was elected, the magnificent 7 big US tech stocks have fallen 20% and Bitcoin is 25% off its peak.
Trump is on the offensive and it has caused a great deal of uncertainty. And markets dislike uncertainty. The new US imposed trade tariffs on imports from Canada, Mexico, Europe and China have caused political stand offs and questioned the stability of global supply chains. Markets initially discounted that Trump would go through with the tariffs – one day they’re levied, the next they’re postponed or cancelled altogether. No wonder stock markets are yo-yoing!
Meanwhile, Trump’s election promise to end the war in Ukraine is at least having some positive stock market impact, particularly in the UK and Europe. On the back of the increased spending announcements on defence and despite the recent volatility, the FTSE 100 Index is still up 2.5% this year to date, and the FTSE Euro 50 Stoxx Index, just over 9%.
Stock market volatility with sudden falls, particularly as markets hit new all-time highs, is not a new thing; it happens frequently. Humans are emotional. Naturally, we worry at times of increased uncertainty. And many investors will question whether this is normal market volatility, or the start of a much larger fall and a prolonged ‘bear market’.
The media certainly likes to pose scary headlines to make you think recent events are something momentous. Here are two good examples from 2016, the year of Brexit and Donald Trump’s first Presidency.
- Sell everything ahead of stock market crash, say RBS economists | Stock markets | The Guardian (JAN 2016)
- Stock markets defy predictions of slump after Trump victory | Donald Trump | The Guardian (NOV 2016)
Things change quickly, both in the geo-political world and in the investment world. It wasn’t that long ago that the Magnificent 7 continued to be the flavour of every investment journalist. Now the same media is posing whether AI investment will translate into increased economic growth…
History tells us a lot. Looking back, this type of volatility is nothing new; here’s some selected highlights of world uncertainties over the last ten years which stock markets and investment portfolios have had to navigate:
- 2016 – Brexit and Trump’s first presidency
- 2018 – The US/China trade war
- 2020 – COVID
- 2022 – Russia attacking Ukraine, global interest rate/inflation rises
- 2023 – Israel, Hamas war
And that’s without covering our own political issues in the UK during 2024.
At times like this, it’s important to remind yourself of a few investment principles:
- Market timing doesn’t work. Staying the course when markets have a dip gives an investor the best chance of picking up the recovery as and when it happens.
- Markets rise as quickly as they fall. And we know the biggest growth can come in a small number of days. Miss that growth, and it impacts your future investment outcomes greatly. For instance, in 2023 and 2024, the S&P 500 Index had periods where it fell by 10% and 8%. The calendar year returns in both years were over 20% (in USD terms).
- Diversification at all levels is key – the number of holdings, asset classes, geography and the type of companies you invest in.
- Revisit your financial plan – if you have a sound plan in place, you have a strategy to meet your expenditure, and you’ll never be forced to make a sale in your portfolio when markets have fallen. You can sit tight with the knowledge that you’ll capture the future recovery.
And if you think ‘this time is different’, look at the list above, remember how you felt then, and remind yourself that markets are resilient and have always recovered, sometimes quickly, sometimes not so quickly.
This current market episode may prove to be a normal blip, or it may prove to be something more prolonged. We simply don’t know. Whatever happens, it doesn’t change the history that markets reward long term investors, as illustrated below.
If you need any guidance, please get in contact with your Relationship Manager.
(Source: Morningstar Adviser WorkStation)
Investment into any portfolio should be regarded as for the medium to long-term.
Past performance is no guarantee of future returns and the value of investments and the income from them are not guaranteed and can fall as well as rise. The returns from your portfolio will fluctuate over time. On encashment of your investment, you may not get back the full amount invested and could lose part or all of your capital.
