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As we step into March, global markets are experiencing heightened volatility, largely driven by geopolitical tensions and economic policy shifts. The most significant factor influencing the markets today is the uncertainty stemming from the U.S., where President Donald Trump’s proposed tariffs and economic policies are causing waves across financial markets worldwide.
A major development in the U.S. has been Trump's appointment of Elon Musk to lead the newly created Department of Government Efficiency, informally dubbed “DOGE.” Musk has pointed out massive inefficiencies and wasteful government spending, aiming to streamline expenditures and reduce fraud. While these initiatives may foster long-term economic efficiency, a rapid reduction in government spending could trigger a short-term recession.
If spending cuts do lead to an economic slowdown, Trump’s likely response will be corporate tax cuts and to pressure the Federal Reserve to cut interest rates to stimulate growth. So far in Trump’s 2nd term, markets have followed a similar pattern to that seen in his 1st term.
US Stock Market Performance: Trump 1st & 2nd Term
A recent rise in the U.S. Economic Policy Uncertainty Index highlights growing investor concerns. Inflation remains a pressing issue, with rising fuel and food prices directly impacting American households. A key question in the minds of investors is whether Trump’s policies will effectively tackle inflation, especially given criticism of the previous administration for letting it run unchecked.
US Economic Policy Uncertainty Index
(Source: Oxford Economics / Haver Analytics)
Despite current volatility, U.S. markets have performed well over the past few years. The S&P 500, while experiencing periodic pullbacks, has generally delivered positive returns in the long term. Market data shows that most years witness a temporary decline of 10% or more, but historically, markets have recovered and ended in positive territory.
In the UK, attention is shifting towards the upcoming Spring Budget, where the government will be assessing ways to manage spending and economic growth. One of the key areas under discussion is defence spending. Labour leader Keir Starmer’s recent visit to the U.S. included discussions on increasing the UK’s defence budget, aligning with Trump’s push for greater NATO contributions. While this may shift government spending priorities, increased defence expenditure could positively impact economic stability and market confidence.
Meanwhile, European markets have shown resilience, with Germany’s DAX index leading gains. Recent constitutional amendments proposed by German Chancellor Friedrich Merz have bolstered investor confidence, contributing to strong market performance. European equities have outperformed U.S. markets in recent weeks, signalling a robust outlook despite global uncertainties.
While market fluctuations can be unsettling, history demonstrates that volatility is a normal part of investing. Our recent investment committee meeting reinforced the importance of maintaining a well-diversified portfolio. The key takeaway: staying the course and focusing on long-term growth has consistently delivered strong results for investors.
As always, if you have any concerns about market trends or your portfolio, please don’t hesitate to reach out. We’re here to help you navigate these uncertain times with confidence and clarity.
For more insights and updates, stay connected with our Wealth of Advice team.
Wealth of Advice are authorised and regulated by the Financial Conduct Authority, reference number 563909. Past performance is no guide to future returns. Your investments can go down as well as up, so you may get back less than you originally invested. This content is for educational purposes only and is not financial advice.
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