Transcript below:
Trump tariffs and market fluctuation
Sarika: So, Ian, Trump’s tariffs, a lot of changes going on in financial markets at the moment, is that something to be worried about?
Ian: Okay so, we’ve seen these market disruptions before. This time, it’s Trump tariffs and I’m sure you’ve switched on the TV, 10 o’clock news, headline.
Sarika: It’s all over.
Ian: It’s all over the news. And that can be worrying if you’re an investor, because it’s 24/7, social media, Trump tariffs, and markets are moving with volatility at the moment, and that is worrying.
Why is it happening? It’s happening because the U.S. President, the administration, have imposed taxes on bringing goods into the U.S, so why they are doing that? They’re doing that because they want to encourage U.S. consumers to buy American, to buy goods manufactured in the U.S, and that will raise taxes and it will create investment for the U.S. It’s all part of this America First policy from Donald Trump.
But as I said, we’ve seen this before, this is not the first market disruption that’s happened.
Sarika: So yes, I agree. You know, I remember living through COVID. I remember just how markets performed in that period as well, there was a lot of uncertainty. And, you know, markets did take a little bit of a hit. Are we going through something similar again?
Ian: So, let’s go back on history, because I think history’s a really good way of helping us understand what’s happening today for an investor. Let’s look at COVID to start with.
So, as you say, not a great time to live through. We were locked in our houses.
There was concern around what that would do from a global level, in terms of health, in terms of people, and obviously, the economy. And one of the shock events afterwards was a recession that came after the very terrible time that COVID was.
But actually, with markets, they fell at the start of COVID within that year, and then they rallied sharply at the end of the year. We look at the Global Financial Crisis, the GFC, 2008, and again, I just remember in the cities of the UK, people were lined up to get money out of the bank.
Sarika: It was that worry, wasn’t it, that actually my money’s in the bank. I’m going to lose it. I’ve worked so hard that emotional driver for those decisions.
Ian: And it was on the 10-o-clock news every night, you know, the headline event. Then it was market turmoil as a result of that and that was a concerning, emotional time to be an investor.
I think both of those events were tangible in the sense of leading to a recession. I feel that this time there’s an intangible element because Donald Trump is the most powerful politician in the world and the story is sort of changing every night on the TV, as is the impact it might or might not have. The president has a track record of, you know, changing his mind and it’s difficult to predict therefore there’s going to be a recession.
Time in the market
Ian: Obviously, we’ve been here before. We’ve been through the uncomfortable times we’ve witnessed it. You know, our average market recover when they’ve had this market stress within 6 to 12 months on average. Some will be a bit longer, the global financial crisis took a bit longer, but markets are resilient over time. As an investor you should always be prepared when you go into investment that you’re going to get some good days and you’re going to get some bad days, but over time, there are more good days and bad days.
Look, I I’ve said this before. Nobody rings a bell when we’re at the top of the market. So we don’t know that, staying invested is super important because by staying invested
through the volatility, yes, you capture some of the down days, but you also capture the up-days and over a long period of time, there are far more up-days with equity markets and bond markets than there are with down days. You’ve got to accept when you invest, you get a bit of a bit of both.
A key piece of information for today is seven out of ten of the best days in the last 20 years were in bear markets, and that’s when markets have fallen on the back of the sort of friction we’ve got right now. That data should tell you something about how we handle volatility.
You can’t time the market.
Sarika: Unless you have a crystal ball Ian.
Ian: You know exactly which you know nobody has. It’s not about timing the market. It’s about time in the market that counts. It’s all about long term returns and stay invested. Diversification managing risk. They are the things that are important to control those emotions we’ve talked about today, and meeting your financial goals.
A global situation
Sarika: So there’s a lot happening in the US. Is it just the US markets that are affecting financial markets at the moment?
Ian: No, I mean this is this is a global market event, you know, and we just think about what what’s happening from the US administration. They’re imposing tariffs on 60 countries outside of the US. So it’s a global situation.
But some markets are performing better than others at the moment. So the UK, let’s use that as an example, the UK had a relatively good first quarter. Why was that? We had some actually some good corporate numbers from the UK and there’s a number of value companies in the UK, and they performed well in the first quarter of the year, better than the growth companies. By the growth companies I mean typically like the technology stocks and of course they’ve fallen in value since the start of the year.
So the UK has performed relatively well. Europe has performed particularly well. It’s the best performing region, in the first quarter of the year, again, grappling with, recession risk and tariff risk and reducing interest rates, and that led to European markets performing relatively well.
Right now most equity markets are feeling it in some way. But that’s a temporary action, I think what the markets will try and do is then work out where, where the growth is going to come from in the near term. I come back to the US situation where US companies, when this sort of settles down, will US exceptionalism work? Will those US companies that are driving high growth technology companies still demand a premium, because if they do, that will feed into their market and that will come through. This is a challenge for the globe.
Emerging markets
Let’s look at emerging markets as well, a lot of the tariffs impact Far Eastern markets particularly. So, China is under pressure at the moment because of the tariffs. Let’s just look what’s happening behind the scenes.
So do you go running?
Sarika: I try okay I try.
Ian: You’ve probably got a pair of of Nike trainers, okay?
Sarika: Yes
Ian: Those trainers are most likely manufactured in the Far East. So what’s going to happen is there’s going to be additional tariffs put on those goods made or manufactured outside of the US and then brought back to the US. And that’s going to make those goods more expensive. That’s what the market’s worried about right now.
Have you got a mobile phone?
Sarika: Yes, well everybody does, again, same principle I’m guessing?
Ian: A lot of the tech companies and the phone companies, they use component parts that are made in Far Eastern markets. So again, we’ve seen share prices in those particular areas decline on those particular stocks in the US and decline on the back of these tariffs. But this is again, I would say is temporary action while the market finds a level and really understands what are actually going to stay in place from the US administration, and whether they’ll be any wriggle room in terms of tariff negotiations, that is to be determined.
Bond marketS
Sarika: So you mentioned there that there’s a lot of impact on the equity market side. What about the bond market? How is that going to be impacted?
Ian: Okay, I don’t know if you remember a couple of years ago, there was a lot of press discussion around the 6040 portfolio. So 60% equities, 40% bonds if you remember that.
Sarika: Did they say it was dead? Those portfolios are dead?
Ian: Yes, I remember the headlines again, back to headlines again and the noise. We are in a different place now. So as, as we’ve talked about, what we’re seeing at the moment is share prices coming down and defensive assets have gone up in value. Safer haven assets have gone up in value. That’s what’s happening at the moment.
What drives bond prices? It’s interest rate perception. So, for most people what is the connection with that? It’s your mortgage. I’m sure a lot of people are looking at the financial press and online media going, where is interest rates going? Where’s my where’s my mortgage rate going? Let’s just look at the US. So in the first quarter, the Federal Reserve, they sat on their hands. They didn’t do anything with interest rates. The chair of the fed left the door open in the last meeting of the quarter, suggesting that there may be more rate cuts on the table.
What’s that telling us? It’s saying that the bond market is more concerned about the threats to growth than it is to inflation.
Where’s the bigger challenge? Is it recession. Is it inflation? And the markets not found that level yet, and that’s why we’ve got that volatility that we’ve got right now.
Defensive play
Sarika: So again, market wobbles. As a CIO what’s your defensive play?
Ian: Well firstly don’t panic. Don’t react to what’s happening in the short term with the noise that’s happening with markets. When we’re building portfolios, we’re building on long term building block that’s data driven, there’s empirical evidence that there’s sort of sound, academic empirical evidence that sits behind the construction of it.
There’ll be a balance between growth assets, normal equities and defensive assets, normally, bonds. And when, you know, if we’re seeing the moment equities are coming down, the bonds are going up, there’s a bit of cushion to this wobble that you’re talking about there. Even if you’ve got a portfolio that is 100% equity, 100% growth assets within that you’ve got diversification. So you’ve got lots of different sectors, lots of different regions. You’re spreading the risk over lots of different areas, so it’s not, for example, just 100% in the US. The U.S is feeling the pain right now on what’s happening with markets. Diversification is important and not reacting is important.
In the long term the markets will find a level and you’ll be your portfolios for the long term and that’s what we’re doing.
Sarika: Yeah, I agree and as they said earlier on, you know no one rings that bell to tell you it’s the bottom of the market and that’s why you almost need some more sound evidence to be making those decisions on than, you know, the, the media and all the noise that comes with it.
The END GOAL
Ian: For a lot of clients, they don’t need to make a change right now unless there’s a change in their financial plan. That means they need to change something about to meet their financial goal, that might create a change of course.
You can say what’s changed in the long-term goal is this, and so portfolios have been set up and structured to meet that financial goal. So, if you stay true to that, those three things we’ve talked about, diversification, managing that emotion and stay invested, that will see through what is going to be, you know, a choppy period, a bumpy period for markets in the next few months.
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The information contained within this document is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.
This article is distributed for educational purposes only and should not be considered financial advice.
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Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.
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