Navigating Reversals, Tariffs, and Investor Optimism

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Taking a look at Global Equities for the second quarter of 2025, it was a crazy quarter for investors.

We did start the quarter with Liberation Day and the approach to tariffs and the extent of these tariffs really shocked investors.

It created a much higher probability of recession that was priced into markets and they fell swiftly with many fearing a bear market.

It almost feels as quickly as that was announced.

We did have a reversal on two key things.

We had a reversal on tariffs with the trade pause.

We also had a reversal on the US plan to cut a lot of government spending.

So DOGE, as it is known, was effectively scrapped.

Elon effectively leaving his post and as investors started to price in lower risks of tariffs, but also the US increasing the debt and really starting up the debt fuelled growth of that economy again had investors feeling very optimistic.

On top of this, we also had US and China relations relieved somewhat and more progress towards what is now signed as the Big Beautiful Bill, which really shows that there is more appetite to spend more fiscally in the US.

If we think about what that meant for markets, it was definitely risk on and despite the initial uncertainty, we had markets up more than 10% in US dollars and a little less given currency moves, a little more than 5% in Australia.

As we look forward now, however, investors are optimistic.

They are pricing in a lot of optimism when it comes to valuation with the equity market price to earnings multiple being back at levels we saw on the 1st of January this year.

So as we look ahead, we do feel a little bit more cautious.

We are monitoring things closely, and we are about to see earnings results come through for the second quarter, and we'll be watching that very, very closely for the US, particularly to see how attitudes have changed around hiring, whether margins and costs are actually starting to flow through and what that means also for inflation.

This is going to be one where investors have to continue, in our view, to pricing that we are in a much different world to the beginning of the year.

And definitely one where it pays to be a little bit more cautious and balanced and potentially think of some of the extreme moves in markets and reposition portfolios for that.

The second quarter was notably eventful, with investors navigating significant market volatility from shock of Liberation Day's tariffs to a remarkable reversal in economic policies.

Samuel Ruiz Portfolio Specialist

Global Equity

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