The economy
Facing tariff uncertainty
- The initial stock market optimism that swelled in the wake of Trump’s election has given way to greater realism as the administration threatens to implement new trade tariffs.
- These “threats” to engage in negotiations have borne fruit in Mexico and Canada, where the acceptance of a 25% duty was suspended for 30 days if both countries agree to certain of the administration’s demands regarding immigration and drug trafficking.
- With regard to China, the Trump administration approved a 10% tariff on imports in a moderate revenue-generating measure that has engendered optimism about US-China relations and could help ease tensions between the two nations.
- The issue of Europe and Ukraine is also in limbo. The US wants to impose a ceasefire by combining pragmatic elements and the prevalence of its economic interests.
- The global economic outlook remains unchanged: the IMF projects US growth of 2.7% in 2025, compared to 1% for the eurozone and 3.3% for the global economy.
- Changes in attitudes unthinkable just a few months ago are now perceptible given the “Trump effect”.
Markets
Increases ease
- Heightened uncertainty eased stock market gains in February in favour of more balanced returns across indices: S&P 500 NR +1.38% YTD; MSCI AC World NR +2.29% YTD.
- We detect two major shifts:
- Positive flows toward long-overlooked European companies.
- Positive flows toward traditional companies on US stock markets, as opposed to the Magnificent Seven.
- Companies are publishing good results, with more evenly distributed growth in fundamentals. Reports show a more normalised scenario for the year in progress, predominantly in Europe and among small-cap companies.
- Debt markets are largely unchanged, with only a slight moderation in yields, which remain high due to uncertainty regarding inflation in the long term, itself stemming from the breadth of new tariff policies.
- A requirement that, as we have mentioned before, cannot be decoupled from high indebtedness (debt-to-GDP ratio) in the US (and the majority of OECD countries).
Investment policy
Caution: managing valuation risk
- Some disparity persists between the valuations of US equities and those of other stock markets. The discrepancy has narrowed somewhat in light of last month’s corrections among US tech companies.
- Despite the volatility of multiples, which is customary on financial markets, EPS (earnings per share) growth expectations remain healthy on both sides of the Atlantic.
- These favourable prospects with respect to fundamentals create a fruitful setting in which to detect opportunities for stock picking, consideration, and investment in the long term.
- This is one reason portfolios retain a portion of defensive (short-term bonds) and monetary assets, as a reserve of “dry powder” with which to capitalise on potential spikes in volatility as information on inflation, spending, and geopolitics evolves.
- Rather than implement any major changes at the moment, we will wait to see what’s on the horizon in the weeks ahead.
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1) The preceding information is provided for promotional and information purposes only. It is not, and is not to be taken as, investment or legal advice; is not intended to take the place of necessary investment advice; and is neither an offer to sell nor solicitation of an offer to buy.
2) All the views and forecasts expressed are based on what are believed to be reliable sources. Nevertheless, EDM Gestión, S.A. SGIIC cannot guarantee their accuracy or completeness and takes no liability for any direct or indirect losses ensuing from using the information provided here.
3) EDM Gestión, S.A. SGIIC calls attention to the fact that past performance is not a reliable indicator of future performance.
4) EDM Gestión, S.A. SGIIC is a Spanish public limited company with tax identification number A58217175, registered on the Spanish National Securities Market Commission's Special Register of Collective Investment Scheme Management Companies under number 49 and at the Companies Registry of Madrid in volume 36739, page 52, sheet M-658326. Its activities include discretionary portfolio management and representing, managing, and administering funds and investment companies incorporated and located in Spain.
