The Economy
"Strategic Uncertainty"
- The uncertainty generated by the aggressive trade strategy of the new U.S. administration has resulted in a significant slowdown in many purchasing and investment decisions. This logical paralysis in an uncertain environment, if prolonged, could lead to an economic slowdown or even a recession.
- This situation has necessitated a downward revision of economic growth forecasts for the U.S., and to a lesser extent in Europe, where estimates were already very conservative. On average, it is estimated that the U.S. GDP could grow by 0.6% in 2025, a figure significantly lower than the 2% estimated at the beginning of the year.
- As this is a self-induced crisis for political reasons (the so-called "strategic uncertainty"), it is a situation that could be avoided if the U.S. and China finally reach a more or less satisfactory agreement that provides some predictability of action.
- Meanwhile, the Federal Reserve remains cautious, observing the situation and the possibility that the tariff hike could hinder the moderation of inflation that had been recorded in recent months.
- All of the above creates a scenario where consumer confidence indicators are at their lowest and economic agents' pessimism is at historic highs.
The Markets
Rebound after Trump's (partial) turn
- Following Trump's 90-day tariff truce with China, the markets have experienced a rebound due to some relief.
- We are in the midst of earnings season, and while some companies, especially those closely tied to consumption, have reduced guidance, the bulk of quality assets have shown resilience but also prudence in advancing future results.
- Meanwhile, Fixed Income has experienced its most volatile month in history, with the MOVE index, which measures bond volatility, at levels not seen since the 2008 financial crisis.
- This bond volatility is fueled by an uncertain economic scenario regarding growth and inflation. And let's not forget the uncontrolled U.S. public deficit.
Investment Policy
Again, the importance of selection
- Let's remember once again that we do not know what will happen in the short term in geopolitics, the economy, and the markets. The stock market rebound confirms this observation.
- What we do know is that history shows time and again that in times of panic, markets do not discriminate in declines, creating opportunities for long-term investors.
- In this sense, EDM fund managers have taken advantage of some unjustified declines to strengthen those positions of greater conviction, where short-term profits may be more protected from a tariff hike or a hypothetical economic slowdown.
- EDM portfolios had underweighted U.S. Equities in favor of European Equities in 2024, whose multiples allowed for a greater margin of safety, as has been demonstrated. Prudence in 2024 has allowed us to navigate the current volatility with greater serenity.
- Due to the high level of uncertainty, we continue to maintain a point of prudence that leaves us room to act if the markets experience moments of volatility again. It should not be forgotten that our approach to wealth management is always long-term.
LEGAL CONSIDERATIONS
1) The present information is for advertising and informational purposes only. It is not and cannot be considered investment advice or legal opinion, nor is it intended to replace the necessary advice in this matter and does not constitute an offer to sell or a solicitation of an offer to buy.
2) All opinions and estimates provided are based on sources considered reliable. However, EDM Gestión, SAU, SGIIC cannot guarantee that they are accurate or complete and assumes no responsibility for any loss, direct or indirect, that may result from the use of the information provided in this document.
3) EDM Gestión, SAU, SGIIC warns that past performance is not a reliable indicator of future performance.
4) EDM Gestión, S.A.U SGIIC is a Spanish public limited company registered in the Special Register of Collective Investment Institution Management Companies of the CNMV with number 49 and registered in the Madrid Mercantile Registry, in volume 36,739, folio 52, sheet M-658.326 and CIF: A-58.217.175. Its activity includes, among others, the representation, management, and administration of Spanish-domiciled and legislated Investment Funds and Companies, and the discretionary management of portfolios.
