WeeklyWatch – Trump puts plans into action

28^th January 2025

Stock Take

Trump already making his mark

Last week, Donald Trump returned to the White House to take up the role as the 47^th President of the United States. He hit the ground running with the announcement of several executive orders, from declassifying files concerning the assassination of President John F. Kennedy to rolling back diversity, equity and inclusion initiatives.

Market commentators focus on tariffs

Trump’s attitude towards tariffs has been of keen interest to market commentators. During his first term as President, he made notable use of tariffs and there’s been an expectation that the same will be the case this time around.

First up, Canada and Mexico

Last week, for example, Trump called for 25% tariffs on Canadian and Mexican goods to be enforced from the beginning of February. If these tariffs are enacted, this could have a big impact on US consumer finances as they will likely foot some of the bill.

The two nations are two of the US’s biggest trade partners, and according to federal trade data, they accounted for almost a third of the value of all goods imported into the US in 2024.

Not so rash after all?

But as it stands, tariff fears haven’t yet been fully realised. After initially opting for a hardline stance on Chinese tariffs, Trump seems to have softened. During his election campaign, there was widespread speculation that 60% tariffs on Chinese imports would be imposed, but last Wednesday, the President revealed his team were now discussing a possible 10% tariff.

Addressing the possible effect that tariffs could have on investments, the Chief Global Market Strategist at Invesco, Kristina Hooper, said:

“When tariffs were implemented in 2018, they caused the S&P 500 Index to experience higher volatility and end the year lower. They caused even more damage to other markets. However, this time around seems like it could be different – there may be more use of tariff threats as a tool to achieve other policy goals and less implementation of actual tariffs. In any event, tariffs had a very temporary impact on the stock market in 2018, so I would not expect new tariffs to impact investors beyond very short time horizons.”

Tariff impacts on global ties and markets

As well as affecting global finances, Trump has been using tariffs as bargaining tools within the international arena. Over the weekend, he threatened Colombia with tariffs to encourage them to take back deportees, but since then, a resolution to the situation seems to have been reached.

George Curtis, Portfolio Manager at TwentyFour Asset Management, commented on the nature of tariffs:

“Tariffs are noise. That doesn’t mean markets wouldn’t react to a tariff-driven increase in prices, but we view the potential inflationary impact of tariffs more as a one-off level shift that could delay the underlying downward trend in inflation rather than disrupting it in the longer term.”

In terms of markets, it’s worth bearing in mind that Trump was only sworn into office a week ago. Since then, US markets have been encouraged, signified by both the S&P 500 and NASDAQ ending the week up.

The Federal Open Market Committee are due to meet later this week to continue discussions on interests, but the expectation is that they will choose to keep them level.

Artificial intelligence’s place in Trump’s plans

Trump has also started to lay out his artificial intelligence (AI) action plan, which has been designed to try and keep the US at the forefront of developments. Optimism surrounding AI boosted several tech company values to reach record highs in 2024.

Having said this, there was surprising news at the end of last week when a relatively small group of developers in China released their AI model, called DeepSeek R1. The model has the ability to compete against US AI models, including ones from Meta and OpenAI, despite costing a fraction of the cost to develop.

Interest-rate cuts on the horizon for Europe?

At the annual World Economic Forum in Davos, various European Central Bank (ECB) policymakers delivered presentations and journalist interviews. They seemed to suggest that interest rate cuts would be happening – and soon. They’re most likely to be announced as early as Thursday when the ECB next meets.

This news, coupled with encouraging business activity numbers, boosted the MSCI Europe ex UK by 1.5%.

The UK presses on

After the gilts stir at the beginning of the year, the UK had a quieter week, with the FTSE 100 flat. Keir Starmer’s government remains in a sticky situation as it tries to generate growth for the nation. Later this week, UK Chancellor Rachel Reeves is expected to give a speech which outlines her ideas; these could include cutting back planning rules and announcing a new runway at Heathrow Airport.

Wealth Check 

Active vs passive investing – does it have to be ‘either/or’?

The investment industry has argued over whether active or passive investing is better. But what if the answer is both?

When it comes to active investment management, the basic argument is that skilled managers are able to identify winners and losers in stock markets. As a result, they should be able to deliver a better return than the market. However, proponents of passive management argue that following the market eliminates the risk of human error and is more cost-effective.

The Head of Investment Specialists at St. James’s Place, Dr Sarah Ruggins, says the argument is dated, adding that a world of investment techniques exists between the two poles, stating:

“We’re unnecessarily constraining our opportunities if we limit ourselves to all active or all passive.”

Is there a sweet spot in the middle ground?

Ruggins argues that both active and passive management and everything in between can be effectively utilised. She identifies that a spectrum exists between the most basic passive, low-cost strategy that uses hybrid options up to the most active managers, who opt to invest without considering indices.

She continues:

“While the first decade of the millennium saw active funds generally outperform, the past few years have favoured passive investing, thanks to the performance of just a few companies dominating market returns.”

Choosing the approach befitting of the market

Investor sentiment is similar to markets in the way that it’s cyclical. When something becomes popular, money gravitates towards it, finding its way there. Ruggins goes on to state:

“It’s unsurprising passives have done so well of late, given the popularity and rise of the largest tech stocks in the world. Investing is for the long term, and success doesn’t come down to last-minute changes. Being disciplined and diversified are key to sustainable performance over the medium to long term across all market conditions. If we fall into the either/or trap around active and passive, you won’t be truly diversified.”

Blending different types of passive and active funds means that Wellesley can create diversified investment portfolios and solutions for you.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

Past performance is not indicative of future performance.

In The Picture

The UK borrowed £17.8 billion in December 2024, exceeding predictions and marking the highest December borrowing in four years.

Increased borrowing in 2025 could have significant implications for the economy. We monitor the fiscal policy and Bank of England’s reaction to borrowing and inflation trends. By doing this, we can adapt to changes in conditions and create well-informed investment decisions for you which will help you achieve your long-term financial goals.

The Last Word

“It could be Saudi Arabia, it could be UK. Traditionally, it’s been the UK.”

– US President Donald Trump talking about where his first international trip of his second term might be.

Invesco and TwentyFour are fund managers for SJP.

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2025. FTSE Russell is a trading name of certain of the LSE Group companies.

“FTSE Russell®” is a trademark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

© S&P Dow Jones LLC 2025; all rights reserved.

Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

 

SJP Approved 27/01/2025