There's a lot happening out there...
The world seems just that little bit stranger and less predictable as Donald Trump enjoys his second term in office. There will be more changes in his first four months than occurred in the entirety of his previous four years. And as these initial weeks pass, it seems likely that Donald Trump means to do as he says.
We are slowly learning that big threats and dramatic shifts are not just the negotiating style of a bombastic autocrat. As I write, the uncertainties of tariffs and geopolitics shutter (or should I say; shudder) yet, despite this backdrop, the world continues to muddle along. There may yet be brighter silver linings.
Because of Trumps disruption, Europe is becoming more united. Certainly, the narrative is one of greater unity. Sadly, this means degrees of “re-arming”. No one is for war, but defences and alliances are being re-examined, history itself is unfolding before our eyes. On trade, China has remained remarkably calm, and they may yet expand their economic stimulus policy - which won’t be bad for New Zealand or Australia. The planet isn’t doing any better, Donald’s “drill baby, drill” is surely not so good for the environment, though the jury is out on EV’s. Cheaper energy could help with goods inflation in the short term and, if interest rates can remain flat or potentially drift lower, this will also be a positive boost.
I am reminded of an old phrase in financial markets: “The market climbs a wall of worry”. Basically, despite conditions that suggest otherwise, markets keep moving forward as fundamentally, there remains more good than bad on the horizon. Share markets are weighing machines, they mostly weigh change.
One thing that will not change is that no matter what happens next week, or in four weeks, four months or even four years, the share markets will climb higher. Knowing precisely where prices will be in a month’s time, or even a year’s time is impossible. We think there is a strong likelihood that they will be near to where they are today. In four years, the probability is greater that they will be even higher and, as we reach further into the future, there comes a point where that certainty is 100%. Holding off (investing), because of a negative news feed or BBQ advice almost always proves to be the wrong move, because now we are trying to time the markets and it has been proven without doubt, few can do this well.
If I showed now a graph of share markets (almost any share market) you would see an upward sloping curve, staggered with sharp rises, and sharp falls. Rises will outnumber falls significantly. Exceptions are always possible, but markets rise over time. We invest money into markets almost irrespective of what’s happening on the day, because all we know is, the best time to invest was yesterday. In ten years, today’s entry point will be entirely lost in the curve. Holding off will simply lose time and money.
We do try to buy on dips, not peaks but again, this very hard to judge and hindsight usually proves it doesn’t matter. If immediate liquidity is needed, we plan for it. We may for example hold more short term “safe havens” than normal and, should markets take a sudden step down, we can then deploy that resource. Inevitably, if the investor is worried enough to be sidelined, they’ll seldom have the confidence to buy on the dip – they will buy too late. Let’s take the guess work out and build a balanced strategy.
Below is a table that offers a perspective on the effect that tariffs and DOGE savings will have on USA GDP. This hypothetical forecast implies that by the fourth quarter 2027, inflation in the USA is under control, exchange rates are stable, and the USA is running a fiscal surplus. The downside, is what damage is done to other countries, in Donald’s bid to MAGA. Perhaps broader trade agreements between countries will be a consequence. Perhaps China will be more conciliatory, to offset America’s mood. There is always opportunity when disruption occurs. It’s exciting and we should be investing with the change.
The views and opinions expressed in this article are intended to be of a general nature and do not constitute personalised advice for an individual client.
