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Market volatility

Date: 14 March 2025

3 minute read

What has happened?

In the last few days, we have seen increased market volatility amid fears that President Trump’s tariff policies could drive the world’s largest economy into recession.

When tariffs are announced, markets often see increased volatility as investors evaluate their potential impact and consider the outlook for future corporate earnings.

The uncertainty and inconsistency around Trump’s policies has many investors keen to understand the potential impacts on their portfolios and long-term financial plans.

What does this mean for investors?

In the short term, the most volatility is seen in those industries directly affected by the tariffs. Sectors such as semiconductors, automobiles, and consumer electronics have seen immediate price movements as investors attempt to price in the potential impacts.

Over the longer term, higher costs for businesses can squeeze profit margins or force price increases that dampen consumer demand. Additionally, the economic uncertainty can often lead to companies postponing capital investments causing a drag on economic growth.

While tariffs pose a challenge for investors and can cause some uncertainty in the short term, historical evidence shows that well-diversified portfolios with appropriate risk management can weather the storm.

 

 

How are we positioned?

The portfolio managers recently implemented a rebalance across all the WealthSelect portfolios.

They have maintained the portfolios’ slight underweight to equity. In addition, they allowed the allocation to gold equities to drift higher despite the strong performance seen year to date, in recognition of the increased risks to the macro outlook.

In the US they are underweight mega cap technology names and continued to rotate from passive to active managers.  The recent increase in US value stocks has boosted relative performance, as too has the slight overweight to Europe.

Within fixed interest, following the ad hoc increase implemented in January, the portfolio managers took some profit from the rally in bond yields. They are comfortable with this positioning currently but are monitoring the possibility of a recession, which might offset higher fiscal spending concerns. They are ready to act in this space if required.

Overall, the portfolio managers are comfortable with how the portfolios are positioned, but they maintain the flexibility to adapt and make changes as required.

Stuart Clark, WealthSelect Portfolio Manager, comments:

Photo of Stuart Clark, WealthSelect Portfolio Manager

“In our recent commentaries, we discussed how the volatility of US policy and the unconventional way in which these policies have been delivered under the new political regime in Washington could significantly impact the outlook for global growth and international trade. The events of the past week have confirmed this with considerable market volatility becoming a reality.

When faced with short-term volatility, we always adopt a pragmatic approach. Do we believe the risk of a US recession has increased? Yes. Is it our assumed scenario? No. However, the risk to growth is higher and inflation has continued to be stickier than central banks, and consumers, would like.  

In the coming days and weeks, we expect more headlines and continued volatility. As always, we will stay aware of the changing conditions whilst not overreacting to any short-term fluctuations.”