Market Update 10th February 2025
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Trump Tariffs
What a week in the US! Beyonce won album of the year at the Grammys, the Eagles won the Superbowl, and Trump tariffs take their first swing. President Donald Trump has imposed his first set of tariffs, something which he heavily discussed in his campaign. Canada and Mexico have been excluded from these tariffs after their Presidents met with the US President. However, Trump has now said he will announce a 25% tariff on all imports of steel and aluminium, and guess who the two largest US suppliers are…you guessed it Canada and Mexico. There are also potential plans for more tariffs on other countries which have not been specified, but Europe is being mentioned.
The first set of tariffs Trump announced was an additional 10% on all goods imported to the US from China. China has responded with its own tariffs which are a 15% border tax on all imports of US coal and liquified natural gas products, and a 10% tariff on all US crude oil, large-engine cars, and agricultural machinery. The tariffs between China and the US are being dubbed the “tit for tat tariffs” which are set to continue with Trump saying he will announce more on Tuesday and Wednesday. Tariffs may not remain but are being used as a negotiation tactic so the risk remains real.
There is a lot of noise around the US market over the last few weeks, more than usual if that’s possible. My colleague George wrote about the AI competitor DeepSeek in last week’s Innovation. Some slight red herrings about the cost of this AI alternative but still was enough to shake the top of the concentrated market. For context Nvidia dropped by $589 billion.
The market performance in the first 100 days of a US presidency is famously scrutinised. During Trump’s last presidency the performance was stellar, but will this continue with the market being much more concentrated than last time and with new international competitors? Also tit for tat tariffs could hurt confidence.
During January a number of markets outside the US performed very well. The UK was up 6% and UK small cap was up 2.4% with value outperforming growth as well. Europe was up 7% and LatAM up over 10%. India was one of the only negative regions at -2.5%. For comparison the US performed just under 3.5% and small cap was 4.5%, and the MSCI World was up just over 3.5%.
But what does this all mean?
We have been positive on US small cap and have been favouring investments in the small cap and value space of the US market as the concentration at the top is concerning.
The UK is a market where we have seen a more positive outlook with large share buybacks and M&A picking up. There are times where I think we forget the UK is still the 3rd largest equity market by value globally, there are lots of opportunities to access great companies across the market cap spectrum. The BoE also reduced rates last week to 4.5% from 4.75%.
Europe’s performance in January was good and there is a growth story going on. Earnings revisions are higher from a lower level and inflation seems to be under control with the ECB continuing to cut rates. There are good opportunities in Europe but the EU is one of the largest trade partners of the US so Trump is likely to be noisy about potential tariffs for the EU.
The US market concentration may be starting to shift but there is also focus on concentration of the US market vs other global markets. Alongside the beginning of the year performance from the UK and Europe can give insight into where investors are seeing opportunities and diversification benefits.
Gold is also an area we are positive on. It did well last year and was up 27.8% vs the S&P 500 up 27.3%. Not saying you should be in one or the other but you can still get strong returns in other assets and worth considering for diversification within a portfolio.
Emily Cave – Research Analyst
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