Anticipates persistent tariff fluctuations despite optimistic inflation forecasts (regarding Ruffer)
Markets are navigating a turning point after trade wars' chaotic start, according to investment firm Ruffer. The firm had already been moving away from overvalued U.S. markets since last year, eyeing global competitors. However, the trade wars have expedited this trend, causing turmoil in global asset markets.
Some analysts have even started questioning the future of the U.S. dollar and the dominance of U.S. markets. The greenback has recovered some ground from recent lows but has still dropped about 9.5% against the euro since January, when the currencies nearly reached parity. Treasuries remain out of favor, while U.S. stocks have seen sharper losses than most rivals since the start of the year.
Jasmine Yeo, a fund manager at Ruffer, expressed concerns about high valuations and low risk-reward in U.S. equities and credit markets. She noted that investors have been heavily positioned in these asset classes with a lot of leverage. Ruffer's core view after the U.S. election was that U.S. exceptionalism would be unlikely under the new administration.
The S&P 500, Dow Jones, and tech-focused Nasdaq have suffered significant losses, while the FTSE 100 and European stocks have seen gains. Hong Kong's Hang Seng has enjoyed double-digit gains, but Shanghai and Tokyo have dropped sharply.
Savers with a high exposure to the U.S. market may have noticed a considerable impact on their pension and investment portfolios. The U.S. represents approximately 72% of the MSCI World index and nearly 43% of the FTSE World Government Bond Index. Fund managers compare their performance and exposure to these indices, making significant underweighting to the U.S. still considerable.
Yeo stated that the end of the beginning has made it challenging for markets, as investors are questioning whether their allocation to U.S. majesty and dominance remains appropriate. The bounce in equity markets may be due to the lack of more negative or surprising news in the coming weeks.
Ruffer has maintained a defensive position, increasing its exposure to cash and cash-like instruments like short-dated bonds, despite the potential for a surge in U.S. inflation. UK stocks make up the largest equity component of Ruffer Investment Company's portfolio.
Shares in Ruffer IC have performed well since the start of the year; the NAV total return over the last 12 months was 4.7%. Investors should monitor labor market data, tariff implementation timelines, and potential Fed policy adjustments for directional cues.
[1] Morningstar revised GDP and inflation projections due to trade tariffs: https://www.morningstar.com/articles/971207/trade-tariffs-and-global-growth-our-new-2025-baseline[2] Analyst target price revisions for the S&P 500: https://www.factset.com/market-research-insights/sp-500-year-end-targets[3] BlackRock on market fundamentals and sentiment-driven volatility: https://www.blackrock.com/us/individual/insights/investment-institute/global-market-outlook[4] Q1 2025 GDP contraction and market rebound: https://www.reuters.com/article/us-usa-economy-gdp/us-gdp-contraction-shows-ecb-room-to-act-at-next-meeting-idUSKCN1RH146
- Hargreaves Lansdown, a personal-finance provider, has highlighted the significant impact of the trade wars on U.S. stocks and markets, emphasizing the high exposure that many savers may have in their pension and investment portfolios.
- Despite the bounce observed in equity markets, Jasmine Yeo, a fund manager at Ruffer, has expressed concerns about the longevity of the U.S. dollar's dominance and the appropriateness of allocating funds to U.S. majesty, considering the current turmoil in global asset markets.
- As markets navigate a turning point in 2025, analysts are closely watching labor market data, tariff implementation timelines, and potential Fed policy adjustments to gain directional cues for their business and personal-finance investments.
- In light of the turmoil caused by trade wars, some investment firms have opted for a defensive position, favoring cash and cash-like instruments like short-dated bonds, such as Ruffer Investment Company, which has the UK's stocks making up the largest equity component of its portfolio.
- Morningstar's revised GDP and inflation projections for 2025 underscore the potential impact of trade tariffs on global asset markets, and analysts are closely monitoring target price revisions for major indices like the S&P 500, in addition to market fundamentals and sentiment-driven volatility, as outlined by BlackRock.
