Investors came into 2025 with a generally positive view on the outlook for US equities, despite the asset class having strongly outperformed the global equity peer group during the previous decade.
Jack Caffrey, who runs the JPMorgan American investment trust, says a key reason for the optimism was that investors expected the presidency of Donald Trump to be replete with tax cuts and deregulation, and that while tariffs were regarded as part of the policy mix, they would be further into the future, and markets could bask in the certainty of a president keen to see equity markets rise.
The focus on trade issues meant that the market didn’t focus on the fundamentals of what was happening
At the same time, US economic data was robust, while the general view was that US interest rates would be cut, providing a further boost for equities.
There was a mini-tantrum from investors right at the end of 2025 as Federal Reserve chair Jay Powell cautioned that, with the domestic economy in a strong position, there was no urgent need to raise rates.
That spawned a sell-off at the end of 2024 before investors embraced the notion that if the economy slowed down the Fed would ride to the rescue with rate cuts, while if the economy remained robust that would also be a positive for equities.
Of course, it has not really worked out that way.
Tom Liebi, head of US and UK market strategy and economics at Zurich, says: “Things have become very unpredictable, we came into the year with the view that Trump is transactional, not a fundamentalist, and that has proved to be the case.
“But while people expected tariffs, those announced on ‘liberation day’ were outrageously high, and triggered a bear market in equities and fears about the outlook for global growth.”
Caffrey says: “The focus on trade issues meant that the market didn’t focus on the fundamentals of what was happening.”
The culmination was a sell-off during what the Trump presidency called “liberation day”, the putative date on which a new tariff policy would be announced.
That date was April 7, and since then there has been what Anthony Willis, senior economist at Columbia Threadneedle, calls an “impressive” rally, which has roughly wiped out all of the losses incurred since then, and as Felix Wintle, US equity fund manager at Tyndall, notes, the US index recently hit two all time highs.
Caffrey says that, after an initial panic due to the rhetoric around Trump’s trade policy, “the market now takes the view that the impact of tariffs won’t be as serious as was initially feared”.