Taking stock of investment markets

In our role as an active top-down investment manager, we constantly analyse and interpret trends from across the globe. At times, some themes garner more attention than others, for example the US in 2025.

Given the fact that US equities make up more than two thirds of global developed markets, a strong focus is always justified, and considering the drama that has unfolded since the US election, how could one possibly look away?

The start of 2025 now seems like some vague memory of a bygone era: Artificial Intelligence (AI) was still the hottest topic on Wall Street and investors were wary that stocks might be overpriced – what a privilege. Uncertainty (the market theme of 2025) was brooding regarding the true extent of newly elected US President Donald Trump’s tariffs and their economic implications.

The returning president had laid his intentions bare, championing the benefits of tariffs throughout his election campaign. Although the market seemed to consider it more bark than bite. However, the president quickly showed that he meant business, signing 26 executive orders on his inauguration day, the first slew of what would become a record number across his first 100 days.

Among Trump’s first declarations were 25% tariffs on imports from Canada and Mexico. What had started as murmuring speculation transformed into a whirlpool of worry as rumours of further levies began to circulate. A series of tariff impositions and pauses in tit-for-tat exchanges left investors struggling to separate wheat from chaff (and there was quite a bit of chaff). Those unwilling to invest based on conjecture allocated away from the US market into global counterparts and safe haven assets.

Growing uncertainty eventually culminated on so-called ‘Liberation Day, which spawned one of the most volatile weeks in US stock market history. Trump’s answers begot even more questions.

The announced import levies were much more extensive than anticipated, and there was a devil in the details – the tariff formula. Widespread panic caused a market drop which swiftly became a severe market correction. Though initially stoic, Trump eventually offered reprieve a week later, with rising bond yields forcing his hand.

In the five trading sessions that elapsed between the two announcements, major indices broke all-time intra-day point swing records multiple times. One beneficiary of the action was gold, which rose above $3,000 per ounce as investors sought to protect their capital. Conversely, oil fell below $60 per barrel for the first time in four years.

Stocks quickly rebounded following the pause in tariffs. Markets were encouraged by the less abrasive sentiment from the White House and the emerging reports of constructive negotiations. Moreover, economic indicators and company earnings remained strong, albeit accompanied by guidance that was cloudy. As the world retreated from the precipice of an all-out trade war, risk sentiment improved, with treasury yields still elevated.

What we did as an active manager

For investors, periods of extreme volatility can be troubling. For active investment managers, volatility can mean opportunity. The success of any fund during periods of steady growth is built on the sensible trades that were made in the preceding periods of uncertainty.

Zurich Investments consists of experienced and highly qualified investment professionals, with a proven track record of making the right asset allocation decisions at the right times*. The secret: more haste, less speed. True skill resides in composure and an ability to dissect noise. Zurich’s Investment team achieves this by being finely attuned to the recent market movements and the prevailing economic and geopolitical climate.

As the risk sentiment began to cool at the beginning of 2025, Zurich’s Investment team added to our already overweight position in gold which was displaying positive price action. This allocation would prove invaluable in the following months as investors retreated into the precious metal among other safe haven assets as markets became more precarious. In addition, we added to our Eurozone bond exposure, the first of a number of tactical trades that would be made in this asset class in 2025, as shifting monetary and fiscal policies provided ample opportunity for exploitation.

In March, we were motivated by the size of corrections in certain markets to add to our equity allocation. Our investment team believed that precipitous price drops left room for markets to recover their poise and focus on factors other than tariffs and tweets.

Additionally, a weakening dollar granted us the opportunity to remove our existing USD hedge. In the wake of Liberation Day, we would neutralise our equity exposure and move to an underweight position in US equities due to the worse-than-anticipated policy announcements and the depressed market price action. The rationale was to take a more cautious stance in the context of severe volatility. We would also shift our equity allocation towards more defensive sectors to insulate our investors from the areas of the stock market that were more sensitive to the geopolitical developments.

In the weeks following Liberation Day, we reduced our government bond holdings after Eurozone yields fell from their initial spike following the German debt-brake removal. This funded additions to our credit exposure, with widening spreads making corporate bonds a more attractive short-term holding.

In May, momentum faded in gold’s rally as the market regained its appetite for risk amid signs that diplomacy might prevail on the tariff front. We reduced our position considerably, collecting profit from gold’s impressive year-to-date run.

What’s the long-term perspective?

Short-term volatility can, of course, be disconcerting. Yet, the sensitivity that we have witnessed in stock prices this year is perhaps unsurprising. In 2024, equity returns had been carried in no small part by the expectation for rapid growth in the AI era. When prices are weighted heavily on expectations, any dent to the vision will have a material impact. The uncertainty of tariffs was this dent, leading to falls from what might well have been unconscionable heights.

However, history shows us that the first 100 days following a partisan change in presidency is typically tumultuous, as shifts and reversals in government policy are implemented into prices. Moreover, performance over the first 100 days is not a good predictor for performance over a full presidential term. A common piece of advice when examining graphs: if in doubt, zoom out. It is imperative as investors that we retain long-term context.

Today, indices such as the S&P 500 and the Dow Jones have recovered to their start-of-year levels and look to potentially resume their usual pattern – up and to the right. But a fog of unpredictability still resides around the future of US trade policy. Tariffs have been paused, but a pause is not a stop. A number of 90-day truces are counting down, and if trading partners fail to strike a deal with Trump by the time these expire, it’s unclear whether he’ll be so magnanimous the next time round. Trump, as a fact, is mercurial in nature and unafraid to be cavalier on issues of consequence.

So, while the recent recovery has indicated that fundamentals are still king, don’t expect the 47th president to surrender his grip on the market anytime soon.

However, our long-term view on equities is still positive. Prevailing economic performance has surprised on the upside, inflation expectations remain anchored, and trade negotiations are progressing seemingly unimpeded by hiccups. As in the past, Zurich Investments is not, and will not, be afraid of volatility. Rather, we will remain finely tuned to short-term developments, while maintaining our long-term perspective and objective of delivering growth to investors.

Speak to the experts

When it comes to your savings and investments, Zurich is committed to doing the best we can for investors. For more information speak to your Financial Broker or visit zurich.ie.

*Source: Zurich, May 2025