Investment Markets are like Cargo..
Investment markets are like cargo getting pulled along at the mercy of the driver.
In a recent blog, I referred to Trump as being like a heavy truck using air brakes on Greenhill Road in peak hour traffic: Lots of hot air, dangerous if it doesn’t slow but ultimately only able to move at the same speed as those around.
Now, many weeks later, there has been limited slowing but that truck is now using loud engine brakes: still hot air but now noisier and suffocating those around with exhaust who are trying madly to get out of the way for fear of being run over or choked…
After the US election, investment markets broadly accepted that Trump had a mandate for some changes, which markets generally welcomed. In fact, equity markets in the US and Aus lifted for over 3 weeks after his Inauguration, even with the frenetic pace of Executive Orders coming from the White House. However, when the rubber hit the road on tariffs by mid-February and global trade efficiencies were really threatened, all markets had to re-adjust and volatility soared.
So, at this point, the ASX volatility index has initially peaked on April 7 over 150% higher than at the US Inauguration and is now in trending back down. Equity markets have been punished (All Ords lost just under 15% between Valentines Day and Apr 7) and there’s been a brief respite although none of us are any wiser about what the next calamity will be.
To focus on some positives, not all markets have gone down. Equities have broadly lost but bond funds and other defensive assets have generally lifted, as we would expect them to in times like this. Also, a positive is the willingness of the US Administration to do a “deal”; when it comes to an investment market recovery, renegotiating trade deficits is very different to cancelling terms of trade altogether (which tariffs could bluntly do). As such, the next positive will be that some businesses (equities) will do better than others in choppy recovering markets.
Whilst it might feel like you (and all Australians who have been watching their super balances get hammered) are simply passengers on Trump’s trucking demolition derby, investment portfolios that are being actively managed have been making adjustments with two main focal points: avoid the investments that are likely to take the biggest ongoing beating, and target those that should have the freedom to recover more quickly. Whilst there’s too many variables to list across our clients’ investments, I’m pleased to report that largely portfolios have responded to these times in the way we would have expected. The key is to make sure your asset allocation is aligned to your long-term goals and don’t get too distracted by the latest message on Trump’s Truth Social network as it’s likely be the opposite the following day.
Ultimately, engine brakes work by creating power absorbing pressure which forces the engine to work against itself. How ironic.
Will Chapman Dip FS(FP)
Authorised Representative (No 311745)
