Opportunities and threats for investors in times of uncertainty

When it comes to investing, recent headlines haven’t offered much reassurance. Ever since President Donald Trump introduced a new range of tariffs, stock markets have been volatile. Initially there was a sharp fall after ‘Liberation Day’ and then some recovery when Trump announced a 90 day pause.

Despite this pause nobody knows for sure what will happen with tariffs and there’s every chance that Trump could change his mind. As a result, investor concerns persist particularly due to Trump's ongoing trade conflict with China, which has led to retaliatory tariffs. Even corporates are holding back on their forecasts due to the unpredictability as the market heads to results season. Just this month multi-national retailer Walmart removed its long-term guidance amid the uncertainty around tariffs1.

Understandably, market volatility and vague forecasts can prompt some investors to make impulsive decisions, adopt a more cautious stance, or attempt to time the market. However, if you have a long-term horizon to achieve your financial goals, the best approach is typically to adhere to your overall financial plan. Additionally, discussing any concerns with your investment manager or financial planner can provide valuable guidance.

Volatility is an inherent part of investing, with asset prices fluctuating due to factors such as economic data, geopolitical events and investor sentiment. For long-term investors, it's crucial to remember that recent bouts of volatility have often been short-lived. The chart below illustrates the trajectory of global markets since 1990, showing that despite significant crashes—such as the dot-com bubble, the Brexit referendum, and Covid-19—markets have generally trended upwards over the long term. 

This suggests that for investors with a long time horizon, the real threat isn't the crashes themselves but the risk of missing out on market recoveries, which can typically occur in the weeks and months after a crash. The second chart highlights that the longer you stay invested, particularly over 10 years or more, the lower the risk becomes. While investing always involves risks and the value of your investments can fluctuate, maintaining discipline and focusing on long-term objectives can improve the chances of success. 

An escalation in tariff disputes could lead to more volatility in stock markets and while this can be unsettling, there are actionable steps you can take to put your portfolio in a position to take advantage of any opportunities. Here are some examples of the threats investors face and the ways in which they can capitalise on them.

Volatility in the US market. Over the past few years, many portfolios have been increasingly weighted towards the US market, as it has generally delivered the highest growth and returns. Tariffs have caused one of the biggest disruptions in decades and in the three days after Liberation Day, $10 trillion in global equity value was wiped out2.  The Magnificent Seven stocks, which include Apple, Microsoft, Nvidia, Alphabet, Meta and Tesla, have seen a fall in value with some like Apple and Nvidia being hit the hardest3. While volatility in the US market has caused concern, avoiding it is impractical, especially as major US listed entities like the Magnificent Seven dominate the market. Instead, this presents an opportunity for investors as they can buy high-quality stocks at a discount. As the market broadens out there could be opportunities for investors in Europe and emerging markets, so it’s important to have a well-diversified portfolio by sector and geography.

US dollar weakness: The dollar could lose its ‘safe haven’ status as it continues to weaken against other currencies. However, there are other assets that could offer less risk in times of volatility, such as gold. Gold’s price has surged over 30% this year, hitting $3,500 a troy ounce. As with any investment, gold’s value could fall as well as rise, so diversification is key with plenty on offer in cash and bond markets. This can help spread the risk with annualised returns of around 4-5%, depending on what product you choose, which could offer cautious investors some options depending on their investment time horizons.

US Treasury sell off: Rising yields and falling bond prices can erode the value of existing bond holdings, posing a significant threat to portfolios heavily invested in fixed-income securities. This can lead to increased volatility and potential losses, especially for those relying on bonds for stable returns. On the other hand, the sell-off can create opportunities for investors to purchase bonds at lower prices, locking in higher yields for the future. This can be particularly advantageous for those with a long-term investment horizon and cash to deploy. For those with a shorter time horizon, short-dated bonds may still be compelling investment opportunity, particularly as they’re less sensitive to interest rate and market fluctuations compared to long-dated bonds. However, when they mature you have the reinvestment risk of where to deploy that capital thereafter.

While market threats can be unsettling, they also present opportunities for investors. Creating a well-diversified portfolio and maintaining a long-term perspective can help navigate these challenges and turn potential threats into profitable opportunities. But talking through these strategies with your dedicated Evelyn Partners expert could offer more peace of mind on how we’re navigating through the challenges posed by tariffs.  
 

Source: MSCI. Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any  direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI's express written consent.