Reflecting on the past month, Jeremy Richardson discusses how changes in US government policy are creating choppy conditions in global equity markets.
US exceptionalism is now being questioned amidst competing policy objectives as US investors turn to more stable business models.
The fundamental economic outlook of Europe is still somewhat mixed, but there are still positives to consider.
It may be a good opportunity to balance portfolios to combat disruptions.
Watch time: 4 minutes, 21 seconds
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Jeremy Richardson
Hello. This is Jeremy Richardson from the RBC Global Equity Team here with another update. Well, a very different market all of a sudden it feels like than the one that we had at the end of 2024, if we cast our minds back to Q4, it was a market which is really characterized by US exceptionalism, where a strong market narrative of a small group of large companies led by technology were leading the market higher.
As we’ve now moved through into the early part of 2025, that type of market dynamic is, seems to have disappeared, and instead we've got much more volatile, much more choppy trading conditions. US exceptionalism is now being questioned, and the reason is I think, because we've got challenges between two almost competing policy objectives from the new incoming administration.
On the one hand, we've got an ambition to try and bring manufacturing jobs back to the US, and tariffs are a really effective way of encouraging companies to make that transition. Of course, tariffs can potentially be inflationary. So, there are some challenges around that type of a policy, even if it does buy you full employment in time.
On the other side, we've got efforts to try and re-energize the US economy through deregulation, these so-called supply side measures allowing free enterprise to flourish, which in theory should be really supportive of corporate profits in time. The challenges here is that, you know, both of these two sort of competing objectives and the policies that support them, sort of bump into each other and they have different lead times and lag times. And it's the confusion that's coming from both of these two things, I think, which is leading to this sort of much more sort of volatile market conditions, as investors are having to respond to new announcements and new policies for both of these two types of, policy agendas.
And this is leading to a shift within the market. We're seeing it within the US, as I say, it was the situation that we had strong market leadership from a narrow cohort of companies that seems to have, ebbed, disappeared, one might argue. Instead, we're seeing a much more defensive posture from a lot of US investors favouring more sort of cautious business models, stable business models, because they are concerned about the effects of some of these policies that are being announced on the optimism of the US consumer. So that US exceptionalism narrative is under pressure. And conversely, we're seeing recovery in other parts of the world, particularly within Europe at the moment. And, you know, people might look at that and scratch their heads because, you know, the fundamental economic outlook of Europe is still somewhat mixed. If you look at things like labour productivity, employment, taxation, for example.
But there are some positives there, which I think people are latching on to, in particular, the prospect of lower energy prices and hopefully the possibility of a cessation of hostilities in Ukraine, which may actually help reconstruction. Put it all together and this more sort of volatile type of market construct that we're seeing at the moment is meaning that for many investors, it's not so much about individual companies that is driving their portfolio decisions at the moment, it's much more about trying to either protect taxable gains as we head towards the year end, or alternatively trying to sort of manage your portfolio at a sort of macro level rather than thinking about individual companies. And that can, in time present a really good opportunity for bottom-up stock specific investors to pick up great businesses opportunistically at really, really attractive prices and we've been very busy looking at opportunities in that context. The other thing that I think is really important and needs to be a more macro, volatile market conditions is to think about risk management and make sure that one has a balanced portfolio so that whether, you know, there are sort of, you know, discontinuities or disruptions, to the market environment that your portfolio remains, hopefully, less sensitive, to those disruptions.
I hope that's been of interest. And I look forward to catching up with you again soon.