The presidential term of Donald Trump Snr was always expected to bring uncertainty, as he aimed to break from tradition in both economic policy and politics. Markets generally dislike uncertainty, which leads to volatility as investors struggle to price assets accurately. However, such volatility can present opportunities for active managers to invest for the long-term at attractive prices – an essential market function.
Following a turbulent start to the year, the second quarter began with Trump’s announcement of potential tariff increases on his so-called ‘Liberation Day’. This policy was intended to address the US trade imbalance with the rest of the world. Simultaneously, investors awaited details of Trump’s ‘Big Beautiful Bill’, aimed at stimulating economic growth through tax cuts. While tariffs are designed to support US industry and job creation, markets feared retaliatory measures from affected countries could raise consumer prices and hinder short-term growth.
Like other developed nations, the US is heavily indebted. Government debt exceeds 120% of GDP, and annual spending surpasses tax revenue, creating a budget deficit that must be financed through additional borrowing. This makes bond market investors crucial. If they believe government policies will spur inflation or harm growth, they can demand higher yields as compensation. Paying bond holders already accounts for nearly 50% of the budget shortfall, and although the tax cuts are meant to boost activity, they would increase the deficit by over $3 trillion.
After ‘Liberation Day’, concerns over growth, inflation, and the deficit triggered a sell-off in US equities, bonds, and currency – bordering on disorderly. The Trump administration’s subsequent softening of rhetoric and a 90-day pause on tariffs helped reverse this trend, allowing US equities to recover. A strong earnings season from companies reporting helped to boost the very large tech stocks, and by quarter’s end, markets were reaching new highs, led by the tech-heavy NASDAQ index.
However, the US Dollar did not rebound, marking its worst six month decline since 1973. For Sterling-based investors, this currency weakness boosted returns from non-US assets and offset the recovery in US equities. Although unusual during times of stress, a weaker Dollar can enhance global liquidity by preventing the reserve currency from absorbing excess liquidity – especially important since most commodities are priced in Dollars. This environment typically benefits Emerging Market equities, which also saw gains due to improved earnings and their lower starting valuations.
European equities stood out, particularly due to a shift in fiscal policy by the traditionally conservative German government, and UK equities also reached an all-time high, reflecting cheap valuations relative to the Global index. Bond markets regained stability after April, and one of the quarter’s most notable features was the resilience of asset prices despite ongoing policy uncertainty.
Markets also weathered the impact of the US and Israel bombing Iran’s nuclear facilities. Although Iran did retaliate and oil prices spiked, the fact that oil supply wasn’t disrupted allowed prices to normalise and investors to remain calm.
Looking ahead, volatility is expected to persist as the market plays a waiting game on tariffs and their impact. Any signs of slowdown in economic activity due to trade policy will be keenly watched by investors, as will the path of price inflation. Central Banks have already indicated that they stand ready to reduce interest rates but the pace and timing of this depend on economic data.
We will maintain our focus on building diversified portfolios to spread risk and maintain a long-term perspective. The coming months will likely present opportunities to add value without taking excessive risk. If you’d like to discuss your investments, please contact your adviser, who will be happy to assist.
Market Commentary July 2025
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The presidential term of Donald Trump Snr was always expected to bring uncertainty, as he aimed to break from tradition in both economic policy and politics. Markets generally dislike uncertainty, which leads to volatility as investors struggle to price assets accurately. However, such volatility can present opportunities for active managers to invest for the long-term at attractive prices – an essential market function.
Following a turbulent start to the year, the second quarter began with Trump’s announcement of potential tariff increases on his so-called ‘Liberation Day’. This policy was intended to address the US trade imbalance with the rest of the world. Simultaneously, investors awaited details of Trump’s ‘Big Beautiful Bill’, aimed at stimulating economic growth through tax cuts. While tariffs are designed to support US industry and job creation, markets feared retaliatory measures from affected countries could raise consumer prices and hinder short-term growth.
Like other developed nations, the US is heavily indebted. Government debt exceeds 120% of GDP, and annual spending surpasses tax revenue, creating a budget deficit that must be financed through additional borrowing. This makes bond market investors crucial. If they believe government policies will spur inflation or harm growth, they can demand higher yields as compensation. Paying bond holders already accounts for nearly 50% of the budget shortfall, and although the tax cuts are meant to boost activity, they would increase the deficit by over $3 trillion.
After ‘Liberation Day’, concerns over growth, inflation, and the deficit triggered a sell-off in US equities, bonds, and currency – bordering on disorderly. The Trump administration’s subsequent softening of rhetoric and a 90-day pause on tariffs helped reverse this trend, allowing US equities to recover. A strong earnings season from companies reporting helped to boost the very large tech stocks, and by quarter’s end, markets were reaching new highs, led by the tech-heavy NASDAQ index.
However, the US Dollar did not rebound, marking its worst six month decline since 1973. For Sterling-based investors, this currency weakness boosted returns from non-US assets and offset the recovery in US equities. Although unusual during times of stress, a weaker Dollar can enhance global liquidity by preventing the reserve currency from absorbing excess liquidity – especially important since most commodities are priced in Dollars. This environment typically benefits Emerging Market equities, which also saw gains due to improved earnings and their lower starting valuations.
European equities stood out, particularly due to a shift in fiscal policy by the traditionally conservative German government, and UK equities also reached an all-time high, reflecting cheap valuations relative to the Global index. Bond markets regained stability after April, and one of the quarter’s most notable features was the resilience of asset prices despite ongoing policy uncertainty.
Markets also weathered the impact of the US and Israel bombing Iran’s nuclear facilities. Although Iran did retaliate and oil prices spiked, the fact that oil supply wasn’t disrupted allowed prices to normalise and investors to remain calm.
Looking ahead, volatility is expected to persist as the market plays a waiting game on tariffs and their impact. Any signs of slowdown in economic activity due to trade policy will be keenly watched by investors, as will the path of price inflation. Central Banks have already indicated that they stand ready to reduce interest rates but the pace and timing of this depend on economic data.
We will maintain our focus on building diversified portfolios to spread risk and maintain a long-term perspective. The coming months will likely present opportunities to add value without taking excessive risk. If you’d like to discuss your investments, please contact your adviser, who will be happy to assist.
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