This article is by Justin Rourke – Head of Advice at Armstrong Watson Financial Planning & Wealth Management and Richard Cole, Fund Manager at Future Money Ltd. We aim to provide you with our commentary on the latest economic and investment developments which are likely to be affecting your investment and pension portfolios.
We also provide regular webinars called “Making Sense of Markets” where they discuss the factors affecting economies and markets. Our last webinar was on 12th February. Please click here to watch.
In this latest update we discuss how Donald Trump is changing the world and the effect this is having on investment markets.
Global Upheaval
The ultimate impact of Donald Trump’s second term in office will be judged by history, but so far his tactic of ‘move fast, and break things’ has shocked the world, upending many decades-old conventions. He has proposed that the US should take over Gaza, clear the population, and develop it as a luxury destination. He has announced trade tariffs of 25% on imports from Canada and Mexico, 20% on China, and threatened 25% on the EU, potentially triggering a new trade war. Regarding Ukraine, Trump has sided with Russia in a UN resolution, labelled Volodymyr Zelenskyy a dictator responsible for starting the war, paused all US military aid for Ukraine, and destroyed the idea of Western unity to the point that NATO countries can no longer be confident in the support of their most powerful member.
In reaction to Trump’s actions, politicians have had varying amounts of success with their responses. In Europe, Keir Starmer and Emmanuel Macron have been balancing flattery with their desired messages in diplomatically successful visits to the White House, while Ukraine’s Zelenskyy walked into a bullying ambush that broke down into the most undiplomatic public meeting the White House has likely ever seen. In Germany, the soon-to-be Chancellor, Friedrich Merz, has taken the brake off public spending with a post-WWII convention-busting rearmament drive, pledging to spend “whatever it takes” on defence as well as creating a €500bn fund to improve infrastructure in the country. Meanwhile, in Beijing, Xi Jinping has said that China is ready for “a tariff war, a trade war, or any other type of war.”
While not to the same scale, Trump’s actions during his first term as President had a similarly alarming style. This caused disruption to the global economy and markets. Yet, throughout this period, US assets were generally among the strongest performing. It is early days, yet this has not been the case in Trump’s second term so far.
Market Impact - Currencies
Investors have been unnerved by his actions, and in terms of making America great again, US assets haven’t yet benefitted. The dollar has fallen against both the pound and the euro since his inauguration, and US equity markets have also underperformed their international peers over this period.
The US dollar has been considered the world’s reserve currency since 1944’s Bretton Woods Agreement, and since then the greenback has often rallied at times of global uncertainty. For the dollar to weaken given the developments of recent weeks is therefore unusual. Yet, with questions increasingly growing about the strength of the US economy given the more persistent inflation expected under Trump and the anticipated impact from his hollowing out of the public sector, economic confidence has been falling. With the US breaking established customs and international trade, trust in the US as a place to deposit wealth is also falling. This explains some dollar weakness. Yet, there are also arguments for strength in both the pound and the euro.
In the UK, the economy is performing slightly better than previously predicted (2024 Q4 GDP was +0.1%, rather than the expected -0.1%), and despite the contentious Autumn Budget and Keir Starmer’s lack of domestic popularity, given Labour’s strong parliamentary majority and the Prime Minister’s serious and diplomatic demeanour on the international stage, confidence in the UK is rising. A further boost is also that the UK seems to have a strong chance of avoiding Trump’s tariffs, with the reason for this being the relatively low level of UK goods which the US imports.
In Europe, meanwhile, the imposition of tariffs will be a drag on economic performance and so could be expected to weaken the euro against the dollar. However, with the expectation of greater defence spending across Europe as the US security umbrella is withdrawn - and especially so given Wednesday’s announcements from Germany - economic growth is expected to improve in the region, therefore supporting the currency. A further boost for the euro over the past year has been the strong performance of European banks which have profited from heightened interest rates.
Market Impact - Stocks
The above aspects of US underperformance can mostly be apportioned to Trump’s actions. In the following, the Trump factor has had an impact, but high valuation levels have laid the foundations.
Some of the largest technology and AI stocks performed very well after the Republican victories last November, as Trump’s promise of lower taxes and deregulation convinced investors that the world would only get more golden for the leading names. Yet, since the inauguration, many of these trends have reversed, and in some cases drastically.
Tesla is the most obvious example. From election day on November 5th to inauguration on January 20th, Tesla’s share price rose by 69%, yet from that date to the time of writing on March 6th, the stock has given up most of those gains, resulting in just a 12% gain over the entire period. Elon Musk has thrown his full weight behind Trump and in doing so has likely alienated a core part of the car company’s consumer base. This is not the only challenge facing them, however, with numerous cheap Chinese brands taking ground from them at the value end of the market, while traditional European manufacturers are squeezing them at the prestige end. Evidence of these troubles was seen in the company’s latest earnings results, released on January 30th, which showed the company had delivered profit and revenue below expectations and that its total sales of cars had fallen for the first time in a decade. Trump was clearly a factor in the wild ride for this stock, but with valuations incredibly high going into this, it shows the risk to the downside should confidence deteriorate.
Another company worth highlighting is Nvidia. While this company has not been significantly affected by the political situation, it has been by the constraints of sky-high expectations. On February 26th, Nvidia released their latest results and despite beating analysts’ already lofty projections, the stock has since fallen. While the company’s management is bullish about their future and dismisses the threat from the Chinese AI upstart DeepSeek, which sent a shockwave through markets in late January, investors appear less confident. On surging optimism about their AI chips, Nvidia briefly became the world’s most valuable company in June 2024. Since that time the earnings results have been consistently strong with their chips seeming to be in almost unlimited demand, yet the share price is now roughly 10% down from last summer’s peak.
These two stock stories are illustrative of a wider trade we have seen in US markets in 2025 so far. The winners of recent years have been the biggest fallers so far. The tech-heavy Nasdaq 100 index is down by 4.3% from January 1st to March 5th, while the equal-weighted S&P 500 index (which has lower exposure to the tech giants than the typical market-cap weight S&P 500) is down just 1.6% (source: Morningstar Direct). Other global markets are either broadly flat in performance or positive over this time. These aren’t huge numbers given the level of disruption seen so far this year, but it is nonetheless important to note given the changing mentality of investors this suggests: AI hype may not lead to ever-increasing share prices, and valuations do ultimately matter.
Future Money Portfolios
At Future Money, the focus is on diversification in investment portfolios. While there is some exposure to the large US technology companies, this is at relatively low levels, preferring exposure to cheaper areas of the market, such as the equal-weight S&P within the US and to cheaper regions globally, such as the UK, Europe, and Asia. These latter areas haven’t been fashionable, but with cheaper valuations, there is less room for disappointment and greater opportunity for improving fortunes.
Donald Trump is changing the world order, which is changing the investment landscape, and we believe that focusing on those areas with more attractive valuations and improving fundamentals will be the best way to navigate this turbulent time.
Our Philosophy
Volatility is a part of investing which is why we always take time to understand how much risk any client is prepared to take before investing. We also generally believe in the benefit of diversification of assets to help manage some of the extremes of the markets. Taking a diversified multi-asset approach means that some assets can fare better in different market conditions as they are more defensive assets such as bonds, whereas during periods of growth equities tend to fair better.
Armstrong Watson, in addition to our full range of accountancy services, also have our own fund management expertise from the Future Money asset management team, as well as independent expertise from the wider market. We are able to use this to help provide insight, commentary, advice and support to our financial planning and wealth management clients.
A key aspect of our investment philosophy is that it is time in the market not timing the market, which is usually the best approach. For more information and guidance on Investing, please download our useful Introduction to Investing here.
At Armstrong Watson, our quest is to help our clients achieve prosperity, a secure future and peace of mind. We believe that for those people who are considering taking financial advice in relation to their savings and investments it may be a good time to do so to utilise existing allowances and tax reliefs due to the fact that certain allowances are frozen to 2028/29.
Important Information
Please note that the contents are based on the author’s opinion and are not intended as investment advice. Past performance is not a reliable indicator of future performance. The value of investments and the income derived from them can fall as well as rise and investors may get back less than they invested.
If you would like to discuss your investment portfolio please speak with one of our Financial Planning Consultants on 0808 144 5575 or email us.
If you would like to discuss your investment portfolio please speak with one of our Financial Planning Consultants on 0808 144 5575 or email us.
