2025 started mostly on a positive note for markets. The United States (US) was poised for growth, and whilst the US market appeared expensive, many were predicting another good year for US equities. Globally, inflation appeared to be under control or least on a downward trajectory. The usual mix of geopolitical tensions, domestic politics, and trade tensions were bubbling away but didn’t seem to worry markets. Investors had embraced the idea of “US exceptionalism” – defined as the idea that the US is distinctive or exemplary compared with other nations. The outperformance of the US bond and equity markets in 2024 was expected to continue in 2025.
The last few weeks have seen a significant change of narrative.
What changed? In two words: President Trump.
Investors initially embraced a Trump administration, expecting a focus on revving up growth with a mix of tax cuts and deregulation. That sentiment has now changed with “Trumpcession” the latest buzzword. Weaker economic data shows that the US economy is shrinking as fallout from Trump’s hefty trade tariffs and slashing of government spending weighs on markets. Negative GDP growth is now expected for the first quarter of 2025. Noting that the technical definition of a recession is two consecutive quarters of negative GDP growth.
More worryingly for the market is President Trump’s narrative switching to that of ‘no pain, no gain’ and not ruling out the possibility of a recession. In addition, President Trump’s geopolitical moves, particularly his unwillingness to back NATO, has further upended global trade and political relations. The downstream impact to interest rates, trade, capital flows, consumption, investment decisions, and economic policy is difficult to predict.
There is some good news. Whilst the focus has been on the US, European and Chinese markets have performed well in 2025. The other point that some market commentators are making is that this could be the market correction that is needed, given the frothiness of the market at the beginning of the year. ‘Buying the dip’ may be the right strategy. The US still has levers such as tax and interest rate cuts to avoid a recession.
What does this mean for your investments?
The issues causing the current volatility are unlikely to be resolved in the short term. We anticipate that some level of uncertainty will permeate markets for some time. It will take some time for markets to adjust to what many commentators are calling a seismic shift to the world economy caused largely by the Trump administration’s policies.
It is normal to feel anxious during periods of market volatility.
The long-term strategy of a well-diversified portfolio commensurate with your risk tolerance is still the most appropriate course of action. Knee-jerk reactions seldomly lead to good investment outcomes.
This Market Update is issued on behalf of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306 and Fortnum Advice ABN 52 634 060 709 AFSL 519190 (Collectively known as Fortnum) (“Licensee”). The information in this update is general only and has not been tailored to individual circumstances. Past performance is not a reliable indicator of future performance and before making any investment decision, you should assess your own circumstances or seek personal advice from a licensed financial adviser. This publication is not available for distribution outside of Australia and may not be passed on to any third person without the prior written consent of the Licensee.
If you have any concerns about your portfolio or investment strategy, please contact your financial adviser.
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Certe is part of the AZNGA Group. General Advice Warning: The information provided on this webpage is intended to provide general information only and the information has been prepared without taking into account any particular person’s objectives, financial situation or needs. Before acting on such information, you should consider the appropriateness of the information having regard to your personal objectives, financial situation or needs. Certe Wealth Protection Pty Ltd (ABN: 31 150 270 278) and Genesis Financial Partners (ABN: 24 095 795 878) are Corporate Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
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