Market Update 27th January 2025

Keep it simple, stupid

As we all know, there is a star-spangled banner hanging over the oval office reading ‘under new management’. Unsurprisingly, given the personality and polarising politics involved, Donald Trump’s executive orders (several of them signed on day one) are a major talking point in markets.

We can understand why, but it is difficult to dissect through the noise at this stage. With that in mind, it’s important to stress that we want to keep our decisions based on facts and evidence, not assumption and guesswork. There are very few prizes for being too early, and the market has a nasty habit of punishing those that try to be too clever.

Take Trump’s stance on trade, for example. I have previously written about how introducing tariffs to the UK is by no means a given, and UK politicians are starting to cotton on. The uncertainty about what will come next arises from the trade position. According to their own data, the US exports more to the UK than the UK exports to them. So, for the Americans, tit-for-tat tariffs threaten to tarnish trade relations. Say that quickly after a Manhattan or two.

So, will tariffs come in? If so, when, where, and at what level? How will these impact any given business? These questions are all difficult, and escalate sharply in complexity. The last one is hugely intricate.

The areas of contention are not confined to trade. There is similar backwards and forwards over defence and healthcare policy. I could fill the rest of the article with questions around these areas. But I shall instead limit myself to just one paragraph.

In defence, will there be a peace deal in Ukraine? What would that look like? What does Trump’s election mean for NATO budgets? And on healthcare, what will the FDA’s approach to new weight loss drugs be? Is there really going to be a reform of the healthcare system? How many changes to Medicare/Medicaid are in the offing?

The answer to all these questions is ‘we don’t know’.

That might feel like a bold admission – but really there is no shame in that statement. We will all have an inclination as to what the right answers are, but in reality the risk/reward balance of predicting any of the above is unfavourable. That trade off only gets worse if one starts trying to forecast second and third derivatives. And then even if one gets all of their assumptions (which is a posh word for guesses) right, this counts for nothing if the market doesn’t respond accordingly. It can be some time before it does. As the old saying goes, the market can remain irrational longer than you can remain solvent.

So, what are we doing, if not trying to predict the unpredictable? Well… predicting the predictable – which is itself a satisfyingly foreseeable answer.

This sounds easy, but getting to a point where one can add value by doing this is harder than it sounds. It takes years of experience. Hours upon hours of research meetings and gathering knowledge about fund managers and the companies themselves.

Once you know how a manager will act, or how a company operates, you get a sense of which of these are best placed to add value in a range of market dynamics.

My job is on the equity side – so I shall draw an example from this world to close this ramble. Given the complexities around predicting the unpredictable macro, are we not better off backing companies that can adapt and thrive in a wide range of environments? Of course we are.

Finding those, by assessing their product, culture, capital allocation, margin cash flows and valuation, will remain my focus no matter how many more executive orders Mr Trump signs in the next four years.

George Salmon – Senior Research Analyst

Hawksmoor Investment Management Limited is authorised and regulated by the Financial Conduct Authority (www.fca.org.uk) with its registered office at 2nd Floor Stratus House, Emperor Way, Exeter Business Park, Exeter, Devon EX1 3QS. This document does not constitute an offer or invitation to any person in respect of the securities or funds described, nor should its content be interpreted as investment or tax advice for which you should consult your independent financial adviser and or accountant. The information and opinions it contains have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, but no representation is made as to their accuracy, completeness or correctness. The editorial content is the personal opinion of George Salmon. Other opinions expressed in this document, whether in general or both on the performance of individual securities and in a wider economic context, represent the views of Hawksmoor at the time of preparation and may be subject to change. Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested. Currency exchange rates may affect the value of investments. FPC25264