Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
Global Head of Investment Strategy
In recent days, global markets have plunged into turmoil following President Donald Trump’s historic tariffs—marking the most significant disruption since the COVID-19 crash. The sudden volatility has left investors anxious and searching for guidance. Below, we address the most pressing questions investors are facing, providing clarity, calm, and actionable insights to help you navigate through uncertainty.
Markets have one universal allergy: uncertainty. Trump’s tariffs, at levels unseen in more than a century, are causing precisely this uncertainty. The US administration has set an unprecedented general tariff of 10% on nearly all imports, with drastically higher tariffs for key trade partners such as China and Europe. Investors fear that these tariffs might trigger retaliatory measures, fueling a damaging global trade war, disrupting global supply chains, and ultimately reducing corporate profits. Think of the global economy as an intricate spider web: disturb one part, and the whole structure vibrates.
Concerned? Naturally. Panicked? No. It’s natural to feel concerned during dramatic market swings, but panic is rarely beneficial. Historical data clearly demonstrates markets inevitably recover from downturns. Your concern level should be calibrated to your financial goals and time horizon. If retirement is far off, market dips can even become valuable opportunities. However, if you have shorter-term cash needs, you might consider slight defensive adjustments. Remember that volatility is not your enemy—it's simply the cost of participating in markets that historically reward patience.
The recent market losses are severe—US stocks alone lost more than USD 6 trillion over two trading days, a pace reminiscent of the dramatic plunges during the 2008 financial crisis and the COVID-19 crash of 2020. Global markets from Europe to Asia are also witnessing historic sell-offs, some posting their worst declines since the global financial crisis.
Yet, historical context helps. Most bear markets have historically recovered fully within two years, and often even sooner. It’s uncomfortable now, but history strongly favours patient investors who remain disciplined.
Trump argues America needs a "reset," believing the US has been unfairly disadvantaged in global trade for decades. His tariffs are intended to push other nations into more favourable trading arrangements, protect domestic industries, and reduce trade deficits. Critics argue this is a dangerous gamble with the global economy at stake—potentially harming long-term growth to achieve short-term political objectives. In a sense, Trump is playing high-stakes poker—betting big to force others into folding, but risking enormous consequences if things go wrong.
Resist panic-selling. It’s typically not a good idea, as it typically locks in losses permanently. Instead, consider whether selective buying makes sense. Buying stocks in high-quality companies at discounted prices during market sell-offs can reward patient investors significantly over the long run. But stay strategic—avoid speculative bets and "betting the farm" on any one investment. Stay disciplined and considered. In turbulent markets, careful, selective investing often outperforms panic-driven decisions.
Volatility presents exceptional opportunities to enter quality stocks and ETFs at discounted valuations. Consider sectors that are typically resilient—such as healthcare, consumer staples, and utilities. Additionally, broad-based ETFs such as the MSCI AC World for immediate diversification and reduced risk during uncertainty.
Use tools like SaxoTraderGO to easily build watchlists of promising ETFs and stocks. Dynamic watchlists created with SaxoTraderGO's screener help you quickly identify opportunities during market dips, enabling you to stay proactive rather than reactive.
Avoid drastic changes, they rarely pay off. Instead, consider fine-tuning your portfolio to make sure it is optimally diversified and balanced. Consider increasing allocations to defensive sectors, government bonds and inflation-protected bonds. Rebalancing periodically can help maintain your preferred risk level without overreacting to short-term events. Think of investing during volatility like sailing through stormy waters—small, measured adjustments keep you safely on course.
Yes—tariffs directly increase consumer prices. Current projections suggest tariffs could raise inflation notably, eroding consumer purchasing power. Including inflation-hedged investments such as inflation-linked bonds in your portfolio can help shield you from these pressures. Inflation is like a slow leak: unnoticed at first, but dangerous if left unattended.
If this trade dispute continues to escalate, we could face severe consequences. Global supply chains may fracture, business investments might stall, and global growth could decelerate sharply. The interconnected nature of the global economy means damage from a prolonged trade war could ripple widely. This trade conflict, if prolonged, is akin to cutting oxygen to global economic growth—it won't collapse overnight, but it will gradually lose strength.
Recession risks have undoubtedly increased. Prominent economists and financial institutions now see a significant probability of recession if tariffs remain high or escalate further. Yet recession is still not certain. Much depends on whether negotiations ease trade tensions and how governments and central banks respond. It’s not yet storming, but storm clouds are gathering rapidly. Read more about Trump’s risky gamble here.
History provides some reassurance as markets have proven extremely resilient in the past. Even the deepest market slumps have eventually reversed. After the 2008 financial crisis and the COVID-19 market crash, stock prices rebounded strongly, rewarding those who stayed invested and calm. Disciplined investors who stayed invested through volatility typically saw significant returns during recovery periods. So historically speaking, staying patient typically yields far greater rewards than attempting to time the market.
Looking back, every major downturn has eventually been followed by significant recoveries—patience pays handsomely in investing.
The most effective defence is always diversification—spread risk across different sectors, geographic regions, and asset classes. Consider adding defensive stocks, safe-haven government bonds, and inflation-hedging assets such as inflation-linked bonds. Avoid panic-selling or overly conservative moves like holding excessive cash. Think of diversification as your portfolio’s seat belt—it won't eliminate risk entirely, but it significantly increases your odds of safely weathering a crash.
Navigating market storms requires a steady hand and clear vision—maintain your discipline, and let your written investment plan guide you.
Storms in the financial markets, like in nature, are inevitable—but they always end. Investors who stay calm, disciplined, and strategic will typically emerge not just intact, but stronger and better positioned for future growth.