Deon Gouws, Chief Investment Officer of Credo, our wealth management partners, looks at the prospects for financial markets in the wake of President Donald Trump’s “Liberation Day” tariff announcements.
In early April, I was asked to participate in an interview on live radio in order to discuss the prospects for financial markets in the wake of President Donald Trump’s “Liberation Day” tariff announcements. Equity prices were plummeting at the time, while US government bond yields were spiking.
How does one begin to address this issue, with perhaps tens of thousands of people listening in while stuck in late afternoon traffic?
I am after all only human myself. I go through emotional swings and suffer from behavioural biases like everyone else. When I’m forced to witness the US announcing a swathe of non-sensical measures the one day, only to pause them again a few days later, I can’t help but get somewhat frustrated.
I also don’t have a crystal ball. As it happens, I was being interviewed just as the stock market was about to turn and make back most of its dramatic decline in the few weeks that followed; by the end of April, the S&P 500 would end up trading at more or less the same level it had on the morning of the original tariff announcements a month earlier.
But, of course, I had no way of knowing about this imminent recovery when being put on the spot, on live radio, while the headlines were screaming and the screens were red.
I did however take some comfort from a tweet that I’d seen earlier that same day, posted by Peter Mallouk, a financial advisor based in Kansas City (the typical reader of this piece would benefit from following him). He said: “Bad investors sell in markets like this. Good investors get nervous but hold. Great investors are completely unfazed. The best investors get excited about potential opportunities.”
Against this background, I scraped together all the courage I could muster and reminded listeners of my favourite ever listed share, namely Microsoft. The stock was trading at $354 as we spoke, which happened to be exactly $100 less than the all-time high it had set just before Christmas last year.
I liked the share at $454 a few months earlier, I said, which means that I should really love it when I see the counter trading at $354. I have exactly the same conviction which I had before, namely that Microsoft’s business will continue to innovate and grow, and in a few years’ time, this is all likely to be reflected in substantially higher profits; no doubt the share price will eventually catch up to that as well.
Based on this, my suggestion was that people holding diversified portfolios of quality stocks should sit tight and ignore the noise (and how noisy it’s been!). And, for the lucky few who had cash to deploy, it was probably a good time to nibble.
In addition to lower share prices, UK investors deploying pounds have also been able to buy shares of best-in-class companies that happen to be US-listed at a GBP/USD exchange rate which is some 10% more favourable than it has been for years. And the cherry on top is that these same companies are bound to benefit from the weaker dollar when they next report, thanks to translation gains on substantial profits earned in jurisdictions other than the US itself.
Since that interview, share prices across the board have made a dramatic comeback. At the time of writing, Microsoft itself is trading above its December high… all’s well that ends well!
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