Macroeconomic Outlook: Volatility and Trade Policy Uncertainty

In recent weeks, stock markets have experienced heightened volatility as investors react to the ongoing uncertainty surrounding U.S. trade policy. The on-again, off-again tariffs imposed by the Trump administration continue to stir concerns about global economic growth. Tariffs, which are essentially taxes on exported goods, serve to raise prices and reduce trade volumes, potentially stalling economic activity and increasing unemployment.

This volatility has left investors questioning whether these tariffs could impact company earnings and whether it could prevent central banks from cutting interest rates. The flip-flopping trade policies have led to uncertainty, causing both CEOs and households to delay investments and spending. This caution is undermining growth prospects and fuelling speculation that a recession may be on the horizon.

Recent Volatility: The Impact of AI and Market Sentiment

This current market volatility marks the second significant bout of instability in 2025. The first occurred in late January when DeepSeek, a Chinese company, released a low-cost Large Language Model (LLM)—a form of artificial intelligence (AI) that generates human-like text. This move raised concerns over whether U.S. tech companies, who have heavily invested in AI, have over-extended themselves, potentially over-valuing their stocks.

While the rise of AI presents exciting opportunities, it also challenges market perceptions about the sustainability of the U.S. tech sector’s growth. As a result, many investors are now questioning whether the AI investment bubble might deflate, leading to further corrections in tech stocks.

Stock Market Performance: Divergence Between the U.S. and Other Global Markets

We have seen a clear divergence in the performance of U.S. markets compared to other global regions. The U.S. stock market has faced a correction (in market terms), falling more than 10% from its most recent peak. In contrast, markets in Europe, the UK, Japan, and China have been more resilient, with gains seen in the UK, Europe and China year-to-date, while the U.S. has experienced losses, particularly in technology stocks.

This period of market volatility underscores the importance of diversification in an investment portfolio. By maintaining exposure to a variety of regions, investors can reduce the risk of being overly reliant on one market’s performance. Diversification provides more stability in times of market uncertainty.

Global Market Insights: The Case for Diversification & Alternatives

The recent market movements reinforce the benefits of diversification in an investment portfolio. Not only across geographies and having a spread of different asset classes. A key component of this is the alternatives sector, which for many investment managers are now building in between 15%-20% of their portfolios to this sector. Alternatives can include, gold, silver, other precious metals, infrastructure, hedge funds, art, wine, cars, jewellery the list goes on. All these elements have an important to role to play in making your money work effectively, ensuring that you are not only optimising your growth but also protecting on the downside.

A great example of this is Gold which has passed $3000 per ounce. The surge on price has been driven by investors (including many of the worlds central banks) purchasing gold as it is deemed to be a safe-haven asset in times of volatility. Another driver at this time of year is the Indian wedding season of which the tradition of gifting gold boosts the market during this time. Gold is in an asset to which you cannot generate an income, but its growth is free of capital gains tax, another feature that is enticing in the current high tax environment we are in.

Market Outlook: Focus on the long term 

It is important to note that while the markets face volatility, the focus remains on long-term growth. Staying invested over the course, rather than trying to time the market, has proven to be a more effective strategy.

Whilst the volatility can be uncomfortable, it does present an opportunity for investors to start investing in companies whose valuations have come off significantly over the past six weeks. Much of the US market has been deemed over valued for too long, with the magnificent seven (Amazon, Tesla, Alphabet, Meta, Nivida, Apple, Microsoft) share prices booming for the last few years to dizzy heights that were unsustainable. Now there is an opportunity to invest into companies at a more reasonable level creating a great opportunity for those looking to invest.

Please feel free to reach out if you have any questions or would like to discuss these developments in more detail. We are here to help you navigate these market shifts and ensure your portfolio remains aligned with your financial objectives.