As we move towards Autumn and hopefully, for my garden at least, the return of some English rain! I hope you have all enjoyed the summer warmth.
If market returns had been low this year, although we were reasonably optimistic, few would have been surprised. At the outset, it appeared that equities would struggle, as markets were worried by a growing list of threats, including tariffs, concerns about the size of spending on AI, fears of recession, increasing taxation, the slow pace of interest rate cuts, and the resurgence of inflation.
In April, Trump’s early tariff announcements had markets falling heavily; since then, however, they have recovered substantially in many cases to record highs.
The AI spending fears have been calmed by the strength of performance of the companies involved; people are becoming more accustomed to the volatility in tariff announcements and are working to reduce their impact.
There is a realisation that the trade issues between China and the US are not a one-way street. China now dominates some sectors, such as rare earths, which the US needs, and at the same time, US trade with China now represents less than 2% of Chinese GDP.
The US “big beautiful bill” represents significant tax cuts, which should also give a short-term lift to the US economy. The saying never bet against the US despite all these issues, still holds true at this time.
The risks, however, clearly remain of trade wars slowing the global economy, inflation taking off again, and higher valuations in some sectors of the markets not being met by the performance of the underlying business.
Our response, as always, remains to focus on good diversification and high-quality companies/assets bought at sensible prices, which we believe will continue to generate good long-term returns.