Exclusive contribution from Chris Weston, Head of Research at Pepperstone
It’s been a tumultuous start to the year for investors, with President Trump’s policies on trade and immigration fuelling concerns of slower US growth, higher unemployment and rising risk of stagflation.
The emergence of compelling investment opportunities outside of the US, notably in European and Chinese equities, combined with Trump’s ‘no pain, no gain’ approach to tariffs, has resulted in broad market volatility: the Nasdaq100 fell 14.2% through February and March, pulled down by Tesla, Nvidia and the full MAG7 basket.
The Main Market Theme for 2025?
Gauging the impact of tariffs on company margins and inflation remains the near-term theme. Later this year, the focus will roll towards the US debt ceiling and the prospects for deregulation, tax cuts and other fiscal levers. The big macro theme for 2025 is therefore pricing the extent of a US economic slowdown – and the prospects for deeper Fed rate cuts.
Playing for Outperformance?
The risk of choppy price action remains high, so long/short or ‘relative value’ strategies that capture outperformance of one market over another could be worth consideration.
For example:
- Long S&P500 / short Russell 2000
- Long DAX / short FTSE 100
Playing Defence?
Gold has been a juggernaut in 2025, although it’s hard to buy at current levels. Pullbacks could be seen as an opportunity to buy in, as demand for safe-haven assets isn’t likely to wane anytime soon. Shorting USDJPY could also be a shrewd move against a deepening economic slowdown in the US.
The Trade in Tech?
With the recent explosion in AI capabilities in China, key tech equities could have further to run. US-listed tech equities remain challenged by incoming export controls, with investors waiting for the facts before buying with greater conviction. That time will come, though, and we could see an Nvidia rally ahead of August’s earnings announcement.
The Wildcard?
Trump has campaigned to increase crude production in the US, ultimately intending to lower oil prices and help bring down headline inflation. However, WTI crude simply refuses to break below $65, with buyers supporting this level repeatedly since August 2024. A fall through this level would reveal expectations of slower global growth, creating volatility and raising the risk that US onshore production will reduce.
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This content is for informational purposes only and does not constitute investment advice. Note past performance does not guarantee future results.
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