The sell off in US markets since the 19th February has intensified as concerns relating to stagflation increase according to the latest economic data. The core PCE figure came in at 0.37% for March, with hotter goods and services components, while spending was weaker than expected. With warning signs from Walmart and FedEx considered bellwethers for the US economy, should we be concerned US consumer spending is slowing?
Inflation expectations have officially surged to 4.1% the highest level since 1993. US tariff front running, attempting to dodge increased costs has led to a $300+ billion trade deficit in 2 months. Short term inflation expectations are also rising, 1 year inflation has surged from 2.6% to 5% since the trade war started. In other words, inflation expectations have doubled in under 3 months.
The uncertainty tariffs are creating, has led to several market swings up and down, while markets try and establish what tariffs will be implemented and which are being used as leverage.
Goldman Sachs chief economist has downgraded the entire US economy from 2.4% at the start of the year to 1.7% a cut of 30%. Proposed tax cuts and regulatory easing should support growth, but those effects will, at least for now be dominated by tariffs.
Bond markets will be watching inflation and the movement in yields will be important to Trump’s borrowing costs and the national debt. With gross debt at $36 trillion and interest payments projected to be $1 trillion a year and growing by 2026, trump will be keen to get yields as low as possible as he refinances existing debt, as it matures. The problem today is that maturing 5-year treasuries is costing 4% whereas it was issued at 0.25% 5 years ago, a 14-fold increase. (source: ycharts March 2025)
So what’s the solution for Investors?
As Wealth advisers with over 30 years’ experience, we’ve witnessed every crisis going back to 1987, but this feels somewhat different from others. Markets at all-time highs, Debt at all-time highs, Inflationary concerns, a Fed unwilling to cut rates and now an escalating global trade war.
We believe, a change in investment approach is required, doing more of the same as far as asset allocation is concerned, and expecting a different outcome is madness. A fresh approach by wealth managers needs to be adopted, to accommodate this new world we are now exposed to. This is why we have extensively analysed market trends as well as risk, to identify revised portfolio strategies that offer increased market security along with potential growth. We are consistently looking for added value for our clients, adapting to change and a forward-thinking approach.
The chart illustrates our new portfolio that clients have recently moved across into and how it would have performed over the last 12 months, compared to the UT Mixed Investment 40-85% Shares Index. We always back test our strategies to identify how they react to increased risk and volatility.
What we liked about this new portfolio construction in green, was the consistent outperformance of the index, but more importantly the degree of risk or volatility the portfolio has is very low, offering the perfect combination of low risk and yet very attractive potential returns. If trumps ‘Liberation Day’ increases market volatility, then our clients have somewhere to hide, while still enjoying market upside as illustrated. Risk and return generally come hand in hand, where lower risk, results in lower potential returns, and higher risk, offers higher potential returns, but we believe we have maintained an overriding opportunity to participate in market returns, while reducing downside risk.
Irrespective of what occurs to markets following Liberation Day, our clients will be well positioned to take full advantage of the opportunities that lie ahead.
If you would like to discuss your investments and how we might be able to assist you, then drop us a message info@wisifa.co.uk.
Share this post: