Confidence in stock markets appears to be coming back as investors move out of defensive assets like money market funds in favour of equities, particularly those listed in the US, according to latest industry data.

Figures from trade body the Investment Association (IA) showed higher monthly inflows in April, rising to £1.5 billion, an increase on March’s figure of £1.3 billion.

Equity outflows reduced significantly over the month as global stocks rebounded, reflecting higher risk appetite and the ability to look past ongoing geopolitical uncertainty.

The MSCI World Index returned 9.6% in April (in US dollar terms), its strongest monthly gain since 2020.

Equity funds reported outflows of £1.3 billion in March while April’s outflows were roughly half that, at £689 million.

Investors favoured equity index trackers over their actively managed equity fund peers, with £1.7 billion inflows compared with outflows from £2.4 billion, respectively.

Should I invest in US equities?

At sector level, North American equities led the charge, attracting £860 million – their highest monthly amount since April 2025.

Miranda Seath, director, market insight and fund sectors at the IA, said the big question was whether this momentum broadens out, or if geopolitical uncertainty keeps risk appetite fairly contained.

The trade body suggested strong earnings from several big tech names in recent weeks – Alphabet (NASDAQ: GOOGL), Meta (NASDAQ: META), Amazon (NASDAQ: AMZN) and Nvidia (NASDAQ: NVDA) all exceeded expectations, supported by continued investment in artificial intelligence (AI) likely contributed to higher demand.

This trend was underlined by £96 million of inflows into the IA Technology and Technology Innovation sector – its first in seven months.

It’s not just tech: 84% of the 485 S&P 500 companies that reported Q1 earnings beat analyst estimates, according to Bloomberg.

In contrast, regional equity fund sectors from UK, global emerging markets, Asia and Europe all reported net outflows, losing £673 million, £477 million, £399 million and £244 million, respectively.

Investing through volatile times

Money market funds – often used as a temporary shelter for investors when markets look uncertain – posted their first outflow since August 2025, with £755 million moving away from these more conservative strategies.There were record inflows to money market funds in the previous month.

Short-term Money Market was the worst-selling sector in April.

Seath said this was particularly striking. “For much of the past year, investors have been holding capital in short-term cash-like assets, understandably so, given the level of uncertainty in markets.

“The fact that we are now seeing that money begin to move is an encouraging sign that investors are starting to feel more confident in the investment outlook, particularly for the US following a strong month of North American equity inflows.

Similarly, the IA Targeted Absolute Return sector also witnessed outflows of £114 million, reversing three consecutive months of inflows.

Bond funds also returned to inflows of £466 million, with Mixed Bond the best-selling fixed income sector at £373 million, followed by Sterling Corporate Bond’s £85 million and Sterling High Yield, which had slightly lower inflows of £79 million. UK Gilts took in £67 million while Government Bonds had further outflows, with £147 million redeemed in April.

By European stock market standards, the size of the SpaceX initial public offering (IPO) will be breathtaking. The company is expected to be valued at between $1.75 trillion and $2 trillion, and given how frothy Wall Street is right now, it would hardly be a surprise if it went to a substantial premium on its first few days of trading. We can all question the valuation. The Starlink business that now provides internet access on flights is a clear money-spinner and it may be able to break into domestic broadband as well, but the plans for a colony on Mars look, to put it politely, a little optimistic. Even so, this is a huge business and a very successful one, and it has created a huge amount of value in a very short period of time.

It is far from alone. Anthropic, the company behind Claude AI, is reported to be planning an IPO in October, with a valuation of $1 trillion or perhaps more. Its rival OpenAI, the company behind ChatGPT, is also expected to list later this year, with a value of close to $1 trillion. There are slightly smaller companies just behind it. Last week, Cerebras, which makes AI chips, made its debut on Nasdaq, and after a first-day premium, saw its value soar to $95 billion. On the US market, incredible amounts of wealth are being created at dizzying speed. Anthropic is only five years old, OpenAI is ten (its profit-making unit only five) and although SpaceX was founded in 2002, it only really got going a decade ago.

The contrast with European stock markets is painful. SpaceX by itself will be worth almost as much as the whole of France's CAC-40 (valued at €2.6 trillion and falling rapidly as the value of LVMH slumps). It will be getting close to the entire value of Britain's FTSE 100, currently valued at £2.4 trillion, and SpaceX and Anthropic combined will certainly be worth more than all of the UK's 100 largest companies put together.

European stock markets need more mavericks like Elon Musk

The reason is clear. Very few new firms are being created. If you exclude mergers, the newest company on the CAC-40 is Eurofins Scientific, which was formed in 1987. Even where there are new companies, the best ones choose to list on Wall Street – the Cambridge-based chip designer ARM, for example, is now worth $220 billion, which would rank it as the third largest in the FTSE 100 if it had decided to list here.

Europe, including the UK, needs to realise how far behind it has fallen and start working out how to turn that around. First, it should radically reduce the taxes on start-ups to encourage more entrepreneurs. Britain has scaled back the break on capital-gains tax that anyone who started a new company used to benefit from, and most of Europe never had any concessions to start with. Instead, there is a constant stream of new wealth taxes and capital-gains taxes, with the Netherlands extraordinarily planning to tax capital gains before they have even been cashed in. No wonder there are far fewer start-ups and hence fewer giants ever emerge.

European stock markets should also roll back restrictions on growth industries such as AI and space. While the US has a booming space industry, Europe has a Space Act; while huge new AI businesses are created on the other side of the Atlantic, Europe is stuck with an AI Act. But there is no point in having a regulator if there isn't an industry to make rules for. There is still little sign that politicians in either Brussels or London realise how much damage has been done by trying to regulate industries before they have even begun.

Finally, Europe should relax the listing rule for entrepreneurs such as Elon Musk who want to keep control of companies. SpaceX will come in for a lot of criticism for allowing Musk so much control over the business and the $1 trillion pay package if he manages to create a thriving human colony on Mars. It doesn't follow Europe's governance rules. But so what? Entrepreneurs are often a little odd, and they are often control freaks, but they also have the drive and ambition to create huge new businesses. Europe could use fewer rules and more mavericks if it is to avoid turning into an investment backwater, with nothing more than a dull collection of very old companies.

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Several stock market index providers are re-evaluating their requirements to potentially fast-track newly listed megacap companies for inclusion on their major benchmarks.

Funds that track an index are obliged to buy all its holdings, although many providers have had a long ‘seasoning’ period in place – a time lag between a company’s Initial Public Offering (IPO) and it being included in a benchmark index that have typically ranged between three and 12 months.

Historically such rules have allowed companies to ‘settle in’, give the market time to digest and assess what they are worth. They also allow company management to adapt to the closer scrutiny that comes with being publicly traded as opposed to privately owned.

These are the kind of measures on which active fund managers will assess companies soon after listing; is the management team coping, have they seen sufficient evidence of growth or do they need to wait longer?

While such criteria might come into active managers’ decision-making, passive funds don’t have the same discretion. If a company joins the S&P 500, any tracker funds replicating the index automatically have to buy its shares.

One rule under review is about this listing time. If proposed changes go ahead, companies set for IPO will be included in tracker funds much sooner, raising questions over whether passive investors are being exposed to more risk, inadvertently.

What changes are being proposed to index inclusion rules?

This month, Nasdaq introduced fast-entry rules allowing megacap stocks to be included in the Nasdaq-100 index of non-financial US-listed stocks after just 15 trading days, as opposed to a year under the previous rules. Updates have also included higher minimum value thresholds, higher liquidity requirements and stronger investor protection.

FTSE Russell, the provider of the Russell 3000, has also consulted on its listing rules for its Russell US Equity Indexes but is yet to publish its outcome.

It is focused on three main areas: fast entry for sizeable IPOs – as short a period as five days rather than waiting for the next annual update; a 5% minimum free-float rule (referring to the percentage of shares available for public investors to buy and sell); and a 5% minimum voting rights rule (meaning public shareholders must collectively have at least 5% of the company’s voting power).

S&P Dow Jones Indices (S&P DJI) – the provider of the US flagship index, the S&P 500 – is currently holding an industry consultation to gather feedback on eligibility rules for megacap companies. It’s also mooting a shorter seasoning period, reducing it from 12 to six months.

It currently defines megacaps as those with market valuations falling in the top 100 constituent companies, although this is also up for review.

In its consultation paper, S&P DJI said: “The proposed criteria exceptions and changes to the S&P 500, S&P MidCap 400 and S&P SmallCap 600 apply only to eligibility determination.

“Therefore, if any of the proposed changes are adopted, such changes would not result in a megacap company’s automatic inclusion within those indices. New constituent selection for those indices remains at the discretion of the Index Committee, subject to the relevant index methodology.”

Requirements on profitability and liquidity for large companies are also under review.

S&P DJI’s consultation is set to close on 28 May. Any changes will take effect before the market opens on Monday 8 June, unless otherwise stated.

Could SpaceX join the S&P 500 when it IPOs?

Record IPOs – like those anticipated by SpaceX, Anthropic and OpenAI – pose unique challenges for index methodologies as they currently stand.

Current estimates are suggesting SpaceX could float with a market capitalisation of between $1 and $2 trillion. FTSE Russell suggested OpenAI could list with a market cap of around $1 trillion and Anthropic around $350 billion. It’s worth remembering that float dates have not yet been set and suggested values and IPO levels are purely speculative.

The providers agree their previous benchmark rules were set up in a very different IPO environment, with more conventional listing profiles. All proposed changes look intent on improving liquidity, fairness and governance standards for index investors.

Market research firm Morningstar, which acquired the Center for Research in Security Prices (CRSP) in February, now benchmarks the entire US equity market, spanning market caps, investment styles and sectors.

It said it was important to adjust eligibility rules so its benchmarks remained relevant to new market realities.

Alex Bryan, director of global equity indexes at Morningstar, said: “The picture here is not radically changing. Even without any changes, a company like SpaceX would probably work its way into all the major indexes eventually. And when companies are added to indexes, I think that only helps deepen the liquidity and improves price discovery. It’s just that instead of being included in months or a couple of years, they could be compressed to a couple weeks or a few days.”

When companies are held private for longer, much of their growth happens before mainstream investors can gain ready access. Bryan said these proposed changes should give passive investors comparable access to active managers.

Most index providers have methodologies designed for much smaller IPOs. Historically, providers required companies to have a certain proportion of their shares available to be freely traded (free float) – before they would be added to an index. Morningstar’s free-float threshold is set at 10% of total market capitalisation, for example.

But a company like SpaceX could have a relatively small IPO in percentage terms and still be one of the largest and most significant companies in the world.

Bryan said: “One of the requirements that Morningstar and others have had is that a new company coming in has to have a certain percentage of their total market cap in free flow to qualify. And 10% of close-to $2 trillion valuation is higher than the IPO that SpaceX is planning to come to market at.

“There’s a recognition across the industry that the historical legacy approach didn’t really anticipate these megacap IPOs at these enormous valuations; they were meant to sidestep thinly-traded small cap stocks.”

The team also made the point around liquidity and transaction costs. Share prices can become volatile around an IPO, leading to price uncertainty and potentially higher trading costs for investors.

But Alex Poukchanski, director of index analytics for Morningstar Indexes, pointed to recent evidence suggesting such volatility typically settles within a few days, especially for very large IPOs, reducing the likelihood of higher transaction costs.

What could a change in index inclusion rules mean for investors?

With private companies remaining private for longer, it’s understandable that stock exchange providers have been keen to reignite flow towards public markets; one way of doing so is to relax some of the headline rules.

“It does make [an IPO] more attractive – particularly for more entrepreneurial companies,” said Dan Coatsworth, head of markets at investment platform AJ Bell.

Coatsworth added that if the likes of SpaceX are listed quicker, it opens up a whole wave of buying from tracker funds as soon as they land on the stock market.

“The last thing any company wants is to join the stock market, not see any interest in its shares and the share price just drifts away,” he said.

While SpaceX, Anthropic and OpenAI have been the names in recent focus, their experience might well pave the way for smaller companies.

One potential trade-off is the chance of sharp share price movements in the early stage after being added to an index.

“You’ll get loads more buying but that could also prompt some investors who got in quickly, looking to trade on a short-term basis, which might trigger massive volatility.”

What force will shape the world in the next 20 years? The answer is China's drive to financialise, according to Diana Choyleva, founder and chief economist at Enodo Economics.

In this episode of the podcast, Diana speaks to MoneyWeek's Cris Sholto Heaton about how the AI race differs in China versus the West, the transformation of the country's equity market, and the breakdown of globalisation.

You can watch this episode on our YouTube channel or subscribe to it on any podcast platform.

About the podcast

MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick and Andrew Van Sickle are joined by influential guests – from CEOs and entrepreneurs to economists and policymakers – to share their top tips on managing money, investing wisely and building wealth.

Subscribe to the MoneyWeek Talks podcast and get ready to make it, keep it and spend it with confidence.

At Janus Henderson's North American Income Trust (NAIT) we focus on US income stocks – quality franchises that consistently generate cash and have disciplined capital-allocation policies focused on investment in the business to sustain competitive advantage while paying a progressive, covered dividend. Surplus cash beyond this may be used for bolt-on mergers and acquisitions, or to repurchase shares when the stock is dislocated from long-term assessments of fair value. The NAIT has a strong record of paying a progressive dividend and growing revenue reserves since the fund's inception in 2012 (it was converted from the Edinburgh Tracker Trust). The average dividend in the portfolio is 3% and dividend growth averages an attractive 6%-7%.

Our revenue reserves can comfortably cover one year of payouts and may be used if needed. However, there was only one small dividend cut during the 2020 pandemic period and none since then. Many UK investors may not automatically think of US income stocks, but there are several that offer attractive and growing dividends. The US has a history of superior earnings growth, which can often translate into higher dividend growth, too.

How to gain exposure to US income stocks

Dell (NYSE: DELL) is a technology infrastructure company uniquely positioned to grab a slice of the next wave of corporate spending on AI applications. Its scale, global supply chain and deep relationships with customers from the private and public sectors make it a preferred supplier of AI servers and data-storage technology. As enterprises move from experimentation to deployment, Dell will benefit from recurring technology update cycles. Growing profitability is supported by the company's shift toward higher-value technology infrastructure and its disciplined cost management. Debt has been cut and capital returns support the yield. We believe Dell's valuation fails fully to reflect the durability of demand and the firm's exposure to capital expenditure on AI.

Johnson & Johnson (NYSE: JNJ) is another US income stock that offers a rare combination of earnings quality and durable growth. Following the spin-off of its consumer-health division in 2023, it is a focused, innovation-driven pharmaceutical company and a leader in medical technology that should comfortably deliver mid-single-digit revenue growth. It has a diversified drug pipeline, which reduces risk, and its franchises in oncology, immunology and cardiovascular treatments are best-in-class, which will support cash flows in the long term. The medical-technology sector is growing strongly and the worst seems to be behind the company when it comes to legal issues. This is restoring investors' confidence and valuations. With a strong balance sheet, consistent free cash flow and a long record of dividend growth, Johnson & Johnson remains a core holding in volatile markets.

Morgan Stanley (NYSE: MS) is a global leader in the capital markets. Its earnings have become more resilient following a strategic pivot toward wealth and investment management, which generates stable, fee-based revenues. These annuity-like income streams provide downside protection while preserving upside exposure to appreciation in the markets and net asset inflows. The firm's strong capital position is enabling it to buy back shares and grow dividends. We believe Morgan Stanley's improved position will deliver impressive gains tied to long-term growth in the financial markets.

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At the beginning of March, Aptiv, a global industrial technology company, approved the spin-off of its electrical distribution systems business into a new publicly traded company, Versigent (NYSE: VGNT). When the new company started trading at the beginning of April, it's fair to say investors were underwhelmed, to say the least. There were hopes that the market would be willing to pay up to $31 a share, but it closed the day below $28 per share.

Yet in 2025, the firm reported $8.8 billion in revenue, $528 million in net income and $893 million in adjusted earnings before Ebitda. The shares are up slightly since the initial public offering, but it is still only valued at $2.5 billion, which looks cheap relative to earnings. And unlike most spin-offs, which are often loaded with debt to offload liabilities from the parent firm, Versigent's leverage is only 1.3 times Ebitda, roughly the market average and well below the market median of 2.6 times, according to S&P Global.

Why is Versigent so unloved?

Versigent is one of those businesses that often fly below investors' radars, but that play an integral role in the global economy. With 138,000 employees in 25 countries, the group has a huge footprint and is deeply embedded in the supply chains of major manufacturers in the vehicle, agricultural and energy-storage sectors.

Officially, Versigent describes itself as “a global leader in the purposeful design and advanced manufacturing of low- and high-voltage electrical architectures”. In simple terms, this means the company designs, develops and manufactures components to help improve the efficiency of electrical systems in vehicles.

This is a highly specialised and labour-intensive process that the original equipment manufacturers have always been happy to outsource, giving Versigent a critical advantage. The group is already one of the top-three suppliers in every region in which it operates and its technology is embedded in one in every six vehicles produced globally (one in three for electric vehicles (EVs)). In addition, around 75% of sales are linked to full-service programmes, in which the firm becomes deeply embedded in electrical-architecture design early in the development process, tying the manufacturer and Versigent together through the design, development, testing and production phases.

In a world that's becoming increasingly dependent on electrical infrastructure and where vehicles are becoming smaller and smarter, the company's services are in demand. UBS has pencilled in revenue growth of 13% by the end of the decade, driven by rising demand for the high-voltage equipment it develops and sells to power network and battery-storage providers, and EV charging systems.

But growth isn't the story here; it's cash generation. Versigent will boast an Ebitda margin of 10.3% for 2026, according to UBS. The company has said it can drive 200 basis points of margin expansion by 2028, although UBS thinks 100 basis points is more likely (the base case). That would still be a near 10% increase on what is already a healthy level of cash generation.

Savings are expected to come from automation. At 80% of sales, manufacturing costs are the firm's largest overhead expense. Management has estimated that 30% of its workforce performs basic tasks, such as wire-cutting and stripping. In its two Chinese factories, these processes are mostly automated, and management wants to roll this out across the rest of its business. As a newly separated business, there are likely to be some additional costs in the short term as employees bed into new functions and the company fills positions previously overseen at the group level, but as an independent company Versigent should be able to identify and strip out costs faster than it would otherwise as part of a larger group.

Versigent is a cash cow

Versigent's appeal lies in its cash generation. UBS believes free cash-flow conversion on net income could hit 80% by the end of the decade. On top of that, analysts are only projecting “minimal capital spending” over this period (about $250 million per annum), so the majority of this should fall to the bottom line. For a company with an already healthy balance sheet, this implies that there will be a healthy amount of cash available to return to investors. Versigent's own projections suggest $1 billion of free cash flow over the two years to 2028 (UBS has pencilled in $830 million).

Cash returns could start imminently. Pre-spin-off, Versigent's management said it required only $400 million in cash for day-to-day liquidity, compared with about $700 million on the post-spin-off balance sheet. Coupled with its regular free cash-flow generation, Versigent could have somewhere in the region of $1.1 billionin extra cash in the next two and a half years to the end of 2028. Analysts at UBS have crunched the numbers on Versigent's potential and come up with some eye-catching figures. The firm's peers pay out around 23% of free cash flow as a dividend. At present, Versigent's average yield is about 2.2%. UBS estimates that if the company pays out 23% of free cash flow (about $170 million to the end of 2028), the shares could yield around 3%.

Assuming the company does not decide to go hunting for acquisitions, that would leave about $930 million for share repurchases, enough to buy back 42% of the group's current outstanding shares. Add that together and it seems as if Versigent has the potential to return about 44% of its current market value to shareholders by the end of 2028. If that isn't enough, the company is around 30% cheaper than its peer group valued by free cash-flow yield. Versigent appears to be somewhat of a hidden gem.

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US stocks have struggled in the opening months of 2026. New analysis from Goldman Sachs suggests that they have made their worst start to a year compared to global counterparts since 1995.

In the year to 18 February, the MSCI ACWI ex USA Index, which tracks large- and mid-cap stocks across developed and emerging markets excluding the US, gained 9.1%. During the same period, the S&P 500, which is effectively a proxy for large US stocks, gained just 0.5%.

The US stock selloff has been driven both by fears that artificial intelligence (AI) stocks are in a bubble, and that AI poses an existential threat to many of the software companies that comprise the rest of the index.

Some of the US’s leading software stocks have been caught in the storm. Salesforce (NYSE:CRM) fell 29.1% in 2026 to 18 February, ServiceNow (NYSE:NOW) fell 29.6% and Adobe (NASDAQ:ADBE) fell 24.8%, amid fears that AI disruptors like OpenAI or Anthropic will erase their business models.

The AI giants among the Magnificent Seven haven’t been spared. Microsoft (NASDAQ:MSFT) fell 17.4% and Amazon (NASDAQ:AMZN) fell 11.3% over the same period.

“Even highly profitable firms with strong balance sheets and deep proprietary datasets [are coming] under pressure,” said John Wyn-Evans, head of market analysis at wealth and asset management group Rathbones. “That shift captures just how quickly investor sentiment has reversed from last year’s broad AI‑driven optimism to a wave of pessimism that treats the entire sector as vulnerable, regardless of fundamentals.”

Could US small caps be poised to gain?

The US big tech selloff doesn’t mean the entire US market should be overlooked. Large caps have soared over the last decade or so as markets have priced in expectations of ever-increasing returns long into the future. As that has happened, their valuations have ballooned along with their market capitalisation, leading to the US market becoming dominated by technology megacaps trading at significantly higher multiples than their global counterparts.

They are also overvalued compared to other US stocks. Specifically, the S&P 600, a preferred quality small cap benchmark, trades at around 15.5-16 times earnings (according to Bloomberg data from January), compared to the S&P 500 which trades at around 25 times (as of 13 February).

“After a decade dominated by mega caps and narrow market leadership, the pieces might be falling into place for US small caps,” said Christopher Colarik, small cap portfolio manager at asset manager Aberdeen Investments.

There are several tailwinds playing out in favour of US small caps.

Firstly, US small caps are improving their profitability faster than their larger counterparts. Analysis of FactSet Research Systems data from investment manager T. Rowe Price shows that S&P 600 firms increased their trailing earnings per share substantially during the second half of 2025, while those of S&P 500 firms stagnated.

This should continue as smaller, more domestically-focused stocks are likely to benefit from policy initiatives like Donald Trump’s ‘One Big Beautiful Bill’ that aim to boost America’s domestic economy.

The macroeconomic backdrop is also favourable. US interest rates are falling, with the Federal Reserve likely to become more dovish under Trump’s pick for its next chair, Kevin Warsh.

Lower interest rates tend to disproportionately benefit small cap stocks as they tend to hold more debt than larger counterparts.

Which US small cap stocks could you consider buying?

The S&P 600 gained 7.9% in the year to 18 February, closer to the performance of global non-US large cap stocks than the S&P 500.

Some of its top performers during the year so far have been:

• Ichor Holdings (NASDAQ:ICHR), a company that designed and manufactures critical fluid delivery systems for semiconductor equipment. Its stock gained 134% in the year to 18 February.
• Chemicals company Chemours (NYSE:CC) which gained 73% in the year to 18 February;
• Electrical energy industry supplier Powell Industries (NASDAQ:POWL), which gained 54% in the same period.

But these industrial sectors, while posting spectacular gains so far this year, aren’t necessarily the best-poised for future gains.

“We’re looking at consumer-linked businesses, particularly those benefiting from rising discretionary spending,” said Colarik. “The unifying theme is profitable, well-capitalised companies in structurally improving industries, with earnings revisions trending higher.”

For an exchange-traded fund capturing US small cap stocks, you could consider buying the iShares S&P SmallCap 600 UCITS ETF (LON:ISP6) or the L&G Russell 2000 US Small Cap Quality UCITS ETF (LON:RTWP).

Investment trusts targeting US small caps include JPMorgan US Smaller Companies (LON:JUSC) and Brown Advisory US Smaller Companies (LON:BASC).

Following three consecutive years of above-average returns from the S&P 500 index, if there is to be a fourth the stock market will have to climb a steep mountain. From my recent market observations, I have come to the conclusion that two current booms will come to an end.

Firstly, capital spending on anything to do with AI will prove no different from previous bubbles fuelled by investors following the zeitgeist. Excessive capital spending caused by a supply shortage is almost always followed by a downturn once supply is satisfied. Die-hard AI enthusiasts can simply look to CoreWeave’s recent collapse or the market’s incredulous response to Open AI’s forecast for capital expenditure (capex) and revenue: the sums just don’t add up.

Secondly, the burgeoning demand for private credit or equity assets over their public equivalents is another trend whose days appear numbered. While light-touch regulatory oversight was fine when the asset class was outside the mainstream, such a hands-off approach to regulation just won’t wash for a pension fund and retail audience.

With greater scrutiny comes better price discovery and, at least for some operators, discrepancy and conflict on the value of assets. Against this backdrop of uncertainty for 2026, here are three stocks that could climb the proverbial stock-market mountain next year.

Three US stocks taking on Goliath

The skilled climber takes the riskiest direct route, straight up the north face. If he doesn’t fall, he will be in his deckchair at the summit swigging a beer long before his companions join him. MongoDB (Nasdaq: MDB) is a $30 billion-software provider of databases for unstructured data (such as emails, telephone-call recordings and social-media posts, which don’t fit neatly into traditional databases). Unstructured databases are a rich source of information for advanced AI programs.

From its $2 billion-revenue base camp, Mongo will attack Oracle, a giant of the sector that’s 50 times larger. A new CEO and a better product should help it chip large chunks off the old block of the competition.

The hiker, a well-prepared adventurer, takes a more cautious approach, avoiding the trickier parts of the climb. The US former Dow Jones constituent, aluminium producer Alcoa (NYSE: AA), is my choice in this regard.

The balance between demand and supply is becoming more favourable, with China curtailing supply. Expect asset sales to act as levers to pull, in addition to relying upon the demand cycle: what do you think goes in all those data centres?

Taking the easiest long route and avoiding tough obstacles is the pathfinder. Enter pharmaceuticals giant Pfizer (NYSE: PFE). The stock is cheap, having lacked growth since the company’s Covid vaccine was launched in 2021. At just 14 times earnings and a 7% dividend yield, investors have a margin of safety built in while we find out if Pfizer’s purchase of Metsera and its obesity drug pays off in the long term.

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If nothing goes awry between now and the new year, 2025 will end up being a much better year for stocks than looked likely eight months ago. The US tariff sell-off in early April was severe at the time, but the slide ended faster than expected and markets rebounded quickly.

For all Donald Trump’s bluster, the reality is that he backtracked on the level of tariffs pretty significantly. Foreign governments signed a bunch of deals to placate him, including many promises around investment and trade that they will do their best not to deliver. Central banks began loosening monetary policy a bit more. So stocks went up again: the MSCI ACWI index – which includes developed and emerging markets – have returned a very strong 18% (including net dividends) in local currency terms.

It is likely that the full effect of the tariffs is yet to show up. It is also plausible that at some point the Trump administration will a) notice that the rest of the world has no intention of actually funnelling hundreds of billions of dollars more into the US and b) start to worry about some early signs of a slowdown in the part of the economy that is not fuelled by AI spending. At that point, it may decide to start a fresh trade war with China and Europe. However, until then, we are where we are: business as usual.

A long-term view on US stocks

Yet something is different. US stocks have returned around 16% this year – an above-average performance. However, that is only just in line with Europe and well below many European countries (including the UK), Japan and emerging markets. Note too this is in local-currency terms: factor in the drop in the US dollar and investors have done better in almost any other market. This runs against American outperformance in recent years and is the opposite of what most strategists were expecting at the start of 2025.

We cannot know whether this will happen again next year. However, on a long-term view we can note that the MSCI USA index trades on a forecast earnings yield (earnings divided by price) of around 4.5%. The MSCI Europe index is on an earnings yield of over 6.5%, the MSCI Japan is around 6% and the MSCI Emerging Markets is a bit under 7.5%.

In theory, the earnings yield is a direct proxy for expected longer-term real returns. You either get earnings back as dividends or reinvested by companies to create growth – either way, a higher yield should mean stronger returns. Reality is never that simple, but it is unarguable that the US will have to keep delivering much better earnings growth than the rest of the world to overcome the drag of starting on a lower yield.

So on a longer-term view, the odds are in favour of an extended spell when the rest of the world outperforms. This is why our asset allocation portfolio – which I will be reviewing shortly – keeps significantly underweighting the US despite its strong past performance. That call may finally be starting to work in our favour.

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At the heart of the global financial markets are the exchanges, such as the London Stock Exchange, the New York Stock Exchange, and the Nasdaq. The function they fulfil in the market is straightforward, yet vital. Exchanges match buyers and sellers and publish the data on the trades. They’re also responsible for bringing assets to market, which can range from shares in public companies to contracts on commodities and interest rates. Most exchanges don’t own the companies that are listed – they only facilitate buying and selling by market participants and take a cut for the privilege.

The CME Group (Nasdaq: CME) is a little different. It is the largest futures and options exchange in the world and, unlike other exchanges, it owns the futures contracts traded on its platforms. These range from the E-Mini S&P 500 contract to interest-rate futures, crude oil, cattle and even bitcoin. For example, more than one million contracts of WTI oil futures and options trade daily, with approximately four million contracts of open interest on the exchange. In this case, one contract is equivalent to 1,000 barrels of oil. The most liquid contract on the exchange, and indeed in the world, is the Three-Month SOFR Futures contract, used for hedging interest-rate exposure.

CME Group has long-term potential

The CME Group’s edge lies in its market position. Liquidity begets liquidity – the more traders there are in the market, the easier and cheaper it is to buy and sell. Along with the advantage of scale, the CME Group’s position in the market for debt futures means it’s well-positioned to capitalise on ballooning government deficits around the world.

Where the company lacks exposure, however, is in the equity futures market. Of all the major exchanges, it has one of the lowest levels of exposure to equity markets. Overall, 18% of revenue in 2024 came from equity contracts, compared with 27% for interest rates, 13% for energy and 10% for agricultural commodities.

The company’s growth over the past five years provides a good indication of its long-term potential. The number of contracts traded across its platforms has jumped from around 18 million a day on average in the first quarter of 2019 to around 30 million. Meanwhile, the revenue per contract has steadily increased. In equities, revenue per contract is expected to rise from $0.529 in 2022 to $0.635 in 2026, according to UBS’s estimates. The overall group average revenue per contract is expected to have risen from $0.643 to $0.689 by 2026.

That might not seem like much on a contract-by-contract basis, but when CME facilitates the trade of 30 million contracts a day, revenue of $0.689 per deal adds up. The group’s Ebitda margin has risen from 67.4% to 70.3% since 2022.

Trading is just part of its offering. CME Group also sells market data. This is becoming an increasingly important part of all global exchanges. LSEG, which owns the London Stock Exchange, generates only 3% of its revenue from trading. A total of 12% of the CME Group’s revenue comes from the sale of data, which is generally far more profitable than trading activity. In the third quarter, CME’s revenue from market data reached a record high, up 14% due to expanding demand, particularly in the Asia-Pacific and Europe, the Middle East, and Africa regions.

CME Group expansion

Steady, but profitable growth has been the name of the game for CME. However, it’s now capitalising on two trends to accelerate expansion. The first is crypto. The group has launched a range of crypto contracts and in the third quarter it facilitated the trading of 340,000 contracts per day, up by more than 225% year-on-year. The group plans to accelerate this growth with the introduction of 24-hour trading.

The second is increased trading in the retail sector. Retail investors have surged into the US futures and options markets since the pandemic, aided by trading apps and easy leverage. Management is leaning into this expanding market. It recently signed an agreement with sports-betting platform FanDuel, which will provide access to approximately 13 million potential new retail accounts.

The exchange has also launched products to facilitate trading in smaller volumes, such as one-ounce gold futures as well as more flexible products, such as weekly agricultural options. As well as these levers, the group is also a leader in AI and machine learning. It’s been using AI to launch new products and reduce settlement and trading times, as well as administration.

CME Group's income kicker

With multiple routes to growth over the coming years, CME Group has all the hallmarks of a growth play. But unusually for US growth stocks, it also has an income kicker. The group pays a regular dividend, supplemented by special dividends. Last year, it paid out $10.80 per share and this year it’s paid out four regular quarterly dividends totalling $5 per share, with the final special dividend yet to be announced (last year, the final payout was $5.80). It’s not inconceivable that the total dividend in 2025 could exceed $11 per share, a yield of 4%. With net cash on the balance sheet (net of regulatory assets) and an Ebitda ratio in the 70s, CME has the capacity to maintain this payout.

Based on the current growth trajectory, analysts at UBS have the stock trading at about 19 times 2029 earnings. That’s not demanding at all for a business that’s consistently registered steady, high-margin growth and has a record of returning cash to investors. CME appears to be an attractive hedge against market volatility and uncertainty with an added growth bonus in the form of its exposure to crypto contracts.

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Sometimes I wonder if the world outside Silicon Valley really wants AI. Yes, the technological advances in this area are staggering. Watch AI tools and agents analyse information, write text, produce photorealistic images and video, and – perhaps most disconcertingly of all – directly operate other computer programmes via text and visual interfaces designed for humans. It is impossible not to be impressed. At the same time, many people say that AI is being forced on them (they notice the proliferation of AI functions that can’t be turned off in all the software we use), they feel no need or desire to try AI, and they think fears about the risks and social consequences are being ignored.

None of this means that AI will not be useful or will not take off – which are not quite the same thing. There were many cynics about the economic value of the internet in the early days – there are few these days. Social media took off like a virus – and now there are growing concerns about the harms. However, the sense that big tech is pushing us harder to use AI feels true. This reflects the sheer amount of money that these companies are funnelling into it, and how much they need it to pay off.

Heavy investment in AI

Julian Bishop and James Ashworth of Brunner Investment Trust (LSE: BUT) summed up the reasons to be cautious well at an event last week. Look at the amount of money being invested – maybe $400-$450 billion this year. Bear in mind that companies say they plan to keep doing this until 2030. You’re looking at $3 trillion in capital expenditure (capex). Look at the revenues being reported by OpenAI and Anthropic as a partial proxy for core AI-based revenues – maybe $20 billion this year for the two. This is growing fast, but it would need to grow a long way further to earn a decent return on capex of this scale. The capex intensity of this stands in sharp contrast to how capex-light the tech giants used to be, which has implications for free cash flow. Note too the way that this capex flows through the market, from energy infrastructure to real-estate developers building data centres. “Large chunks of the market’s ongoing strength are contingent on AI working out,” says Bishop. (See also the chart above from Joel Suss in the Financial Times, implying that AI spending is now dominating US investment.)

A capex bubble can have long-term benefits, even if investors lose out – think of canals and railways. Yet here the money is being spent on short-life assets, notes Ashworth. Nvidia’s costly chips may be in use for five years or less.

On the plus side, the US tech giants are highly cash generative. It may not be irrational in the long term for them to spend heavily now to defend their positions against potential threats. The greatest froth is in private markets, say Bishop and Ashworth; they hold some of the mega caps. Still, they are clearly on the alert for signs that the cycle is turning, and this feels right. We cannot ignore the idea of an AI revolution, but with the tech giants making up 35% of the S&P 500, there is a lot of downside if it evaporates.

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Rob Granieri is “the last founder standing” at Jane Street – “the black-box money machine” currently “minting Wall Street records”, says Bloomberg. But he’s almost impossible to pin down – guarding his “low-key stature” so tightly that he often goes unrecognised, even in his own company, where he officially has no title. His profile in the employee directory stands out for its missing headshot.

If you want a sighting of the “schlubby” billionaire recluse, you’re better off looking beyond Wall Street. The “soft-spoken libertarian” is most at home at alternative gatherings: notably that “mecca of counterculture”, the Burning Man festival. Another favoured haunt is the Scarlet Pearl casino in Mississippi’s Biloxi Bay – a family affair he helped build and finance.

Still, “invisibility has grown harder to maintain” as Jane Street’s profits have exploded, says the New York Post. The firm, which some have dubbed the world’s most lucrative trading house, has enjoyed such breakneck growth over the past five years – at the vanguard of the exchange-traded fund boom – that it accounted “for nearly a quarter of all US-listed ETF trading volume last year”. “The amount of money they make is almost obscene,” one former analyst told the Financial Times, which describes the “quirky and opaque” outfit, renowned for spotting arbitrage opportunities, as one of the “new titans of Wall Street” – frequently trouncing establishment rivals. Jane Street’s $21.9 billion trading revenues in 2023 were “equivalent to roughly one-seventh of the combined equity, bond, currency and commodity trading revenues of all the dozen major global investment banks”. The arrival of bitcoin ETFs the following year put another rocket under revenues. As of June this year, it had already pulled in $17 billion.

Granieri, now 53, always “harboured ambitions to make a lot of money”, says Bloomberg. After graduation in 1992, he printed a stack of CVs and dropped them off on each floor of Philadelphia’s tallest buildings. The strategy worked. He scored a job at Jeff Yass’s Susquehanna International Group, “the quant-trading firm that was quietly becoming a market behemoth,” and was soon pulling in $700,000 a year. But, itching for change, he teamed up with two other traders to form the firm that became Jane Street in 1999.

Rob Granieri: into the limelight

Being dragged into the limelight by success is one thing. Sadly for Granieri, Jane Street is increasingly under scrutiny for other reasons, too. Most serious, says Bloomberg, is an accusation by the Indian regulator of “rigging the world’s largest options market”, which the firm has vowed to fight. The collapse of Sam Bankman-Fried’s FTX crypto exchange, and subsequent high-profile fraud trial, also shone unwelcome light on the firm’s culture – “SBF” spent his early career there, personally recruited by Granieri. “Having Jane Street on the CV was a crucial bit of Bankman-Fried’s sales pitch,” notes the FT. Yet the lax office vibe at FTX was a partial mirror of Jane Street’s, where Granieri “has inculcated a culture that mirrors his quirks”, says the New York Post.

The wider worry, says the FT, is that Jane Street’s “tight-knit” corporate culture no longer fits its size and global clout. The firm is run by roughly 40 equity partners with no traditional management structure: a recipe for a lack of accountability, say critics. Much depends on the outcome of the Indian investigation. The worse-case scenario for the firm is that “the temporary block on activities” imposed there could spread to other jurisdictions as regulators dig deeper. One of Granieri’s few personal indulgences is fine dining. Why cook, he jokes, when you can “eat at Le Bernardin every night”? Given his woes, he could be forgiven a spot of comfort eating.

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Britain’s investment establishment is firmly convinced that the US market – and in particular the technology-centric “Magnificent Seven” stocks – are an investment bubble that is destined to implode as the “hype” surrounding AI dissolves. Terrified by the speed and scale of the bull market, which they failed to foresee, they are desperately waiting for a repeat of the 2000-2003 collapse.

In the US, they think differently. The Magnificent Seven’s market share of the S&P 500 has doubled to 32% since the end of 2022, while its share of corporate earnings has risen from 13% to 23%, points out veteran strategist Ed Yardeni. The share of the information technology and communication services sector in the S&P index has just passed the peak of 40% reached in early 2000, but it now accounts for 37% of forward earnings against a peak of 24% in early 2000. So long as the earnings growth of the S&P 500 and the tech sector continues, the doomsters on this side of the Atlantic will keep being disappointed.

The AI maximalists

The bearish UK consensus makes the bullishness of the team managing the £5 billion Polar Capital Technology Trust (LSE: PCT) almost contrarian. Ben Rogoff, the lead manager, describes the team as “AI maximalists” who believe that AI will change the world and have focused the portfolio accordingly. Since April, AI winners have outperformed AI losers by 50%, he says. This accounts for the 36% return of the trust, compared with 27% for its tech sector benchmark. This followed a dull year in which the trust returned just 3% compared with a benchmark return of 5%.

That said, Rogoff warns investors to expect volatility: “it’s pretty normal in a time of change”. During the 1995-1998 bull market, there were seven setbacks of more than 15%.

“You’ll only hear negative things about AI,” he says, “but we refute very strongly that we are in an AI bubble, rather a transformative technology era.” In periods of transformative change, the pace of improvement is very rapid. The invention of lifts by Otis in 1885 enabled the construction of skyscrapers and a trebling in the height of buildings to 42 metres. The Empire State Building, which was completed 46 years later, multiplied this nine-fold to 381 metres.

Explosive growth in AI

Global annual spending on information technology was $5.4 trillion last year, but the global wage bill was $44 trillion. “Therein lies the market opportunity.” Growth in AI has been explosive as it quickly became a corporate imperative: there are 700 million weekly users of OpenAI and one billion for Meta AI. Investors were briefly taken aback by China’s DeepSeek bursting onto the market, but Rogoff sees it as just a milestone on the path of progress with the cost likely to collapse. “This is a feature of the tech model, not a bug.”

The capital expenditure by the largest tech companies continues to rise, with compound annual growth of 40% expected between 2023 and 2027. “If DeepSeek was a problem, they wouldn’t be spending this,” says Rogoff. Yet AI capex still accounts for under 1% of US GDP. By comparison, “railroad capex reached 3% in the 19th century”.

While AI is an opportunity for some, it is a threat to others. Intel, the best semiconductor company in its time, started to lose investors’ confidence in 2015 “when they realised it wouldn’t be the conduit to the world of cloud storage”. Now software firms Adobe and Chegg are AI casualties because “the market is a discounting mechanism and so looks well ahead. AI is scaling faster than Moore’s law”. (Moore’s law is the 1975 prediction by the cofounder of Intel that the number of transistors on a microchip would double every two years – a trend for the growth of computing power.)

A broad portfolio with an AI focus

The trust’s portfolio has 90-110 stocks, “almost all explained by our AI focus”, but “we are not afraid to have zero weightings in firms in our benchmark”. A broad portfolio enables the managers to have benchmark or underweight positions in firms where they do not have a strong conviction, such as Oracle (up nearly 40% in a day recently) and Palantir (very pricey, “but you have to look at the scale of the opportunity”). Quantum computing is an “exciting technology, but despite significant breakthroughs in the last two years, it is still pre-revenue and at least five years away from profitability”.

Inevitably, nearly 75% of the portfolio is US listed, with less than 1% in the UK, while 97% is in firms with a market valuation above $10 billion. “We have twice the growth of the index for a limited valuation premium.” A third of the portfolio is in the Magnificent Seven, “but we expect that to come down”. Avoid a holding at your peril.

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The stock market entered a sharp selloff on Friday 10 October as US president Donald Trump revived threats to slap punitive tariffs on China.

In response to what he perceived as unfair dealings from Chinese counterparts, especially regarding exports of strategically critical rare earth metals, Trump threatened to impose 100% tariffs on US imports from China along with additional controls on critical software.

This latest tariff threat prompted a stock market selloff. The S&P 500, a bellwether for the US stock market, fell 2.7% on 10 October as investors fled US stocks. Risk assets like artificial intelligence (AI) and technology stocks as well as cryptocurrencies (crypto) were particularly hard-hit.

“The Nasdaq [plunged] over 3.5%, with tech stocks hit hardest because of their reliance on rare earths from China,” said Victoria Scholar, head of investment at Interactive Investor.

The S&P 500’s drop marks the US stock market’s biggest selloff since the height of tariff disruption back in April.

Underscoring their greater volatility compared to equities, crypto markets bore the brunt of the stock market selloff.

“At one point, Bitcoin bottomed out over 13% lower than the all-time highs seen last week, as traders scrambled to close positions,” said Derren Nathan, head of equity research at Hargreaves Lansdown.

Is the US stock market crashing?

The latest stock market selloff followed hot on the heels of warnings from the likes of Jamie Dimon and the Bank of England that stock market valuations, particularly in the leading AI and technology stocks which stand to be hit if China and the US enter another trade spat, are dangerously overstretched.

Even before Trump’s latest war of words with Beijing, fears were mounting that the AI megacap bubble could burst. The latest developments are also playing out against a backdrop of diminishing faith in the previously dominant concept of US exceptionalism.

“Downside risks to the [US] economy are mounting,” said Michael Pearce, deputy US economist at Oxford Economics, “with China’s move to apply broader export controls on rare earths threatening an escalation of the trade war.”

Morningstar data shows investors withdrew $87 billion from US equity funds in the four months to 31 August, indicating that despite the US stock market reaching new all-time highs in the meantime, many investors are becoming wary that the US stock market could be about to crash.

The winners from the stock market selloff

While US tech stocks and crypto prices have been hit hard by the stock market selloff, other assets have gained on renewed uncertainty.

Front and centre is gold, which has thrived in the uncertainty that 2025 and the tariff disruption has caused. The price of gold hit another all-time high of $4,079.8 on the morning of 13 October.

“The flight to safety trade has continued to propel gold and silver,” said Scholar. “The US government shutdown provides further uncertainty, pushing up demand for safety assets.. There’s a feeling that many investors, unsure where to put their money, have been watching gold’s appreciation and have hopped on the bandwagon,” she added.

The FTSE 100, meanwhile, fell around 0.9% on Friday following Trump’s tariff threat, but opened 0.1% higher on Monday morning.

Buying the dip – is TACO coming?

April saw the rise of the ‘TACO’ acronym, standing for ‘Trump always chickens out’, when Trump eventually soothed global markets for stocks and bonds by rolling back on some of the most extreme tariffs that he had announced.

Hopes that the TACO trade could be coming into play have risen very early this time around. Trump posted on his Truth Social platform on Sunday 12 October: “Don’t worry about China, it will all be fine! Highly respected President Xi just had a bad moment. He doesn’t want Depression for his country, and neither do I. The U.S.A. wants to help China, not hurt it!!!”

The post appears to have sparked a partial reversal of Friday’s stock market selloff. S&P 500 Futures gained as much as 1.7% during the morning of Monday 13 October.

“We believe the bark will be way worse than [the] bite here,” said Dan Ives, global head of technology research at Wedbush Securities. “Trump and Xi [Jinping, president of China] should be meeting in the next few weeks to discuss some of these topics and likely the 1 November tariff threat overhang will ultimately be removed,” he added.

This optimism appears to be prompting many investors to ‘buy the dip’ on the basis that the worst of the rhetoric between the US and China will be promptly rowed back.

“Traders may be banking on a similar pattern where American indices entered a six-month period of almost unbroken growth helped by a string of trade deals,” said Nathan.

My hope when markets began to wobble earlier this year was that the spotlight would start to shift a little bit away from US equities. This isn’t because I’m a committed bear on America. Yes, I am uncomfortable with how much a typical global portfolio will now have in pricey-looking US stocks when domestic politics are clearly becoming less business-friendly. However, that is about managing risk rather than a firm certainty that the tech boom has yet run its course.

Instead, my concern is that the amount of commentary that hinges on the US market, US economy and US politics – indeed, anything wrapped in the stars and stripes – has become monomaniacal. Markets have far too little idea what is happening elsewhere. Take the entire UK stock market, which is dying in part because there is so little attention paid to the small- and mid-cap segment that it no longer functions. The number of take-private deals at large premiums to the undisturbed price testifies to that.

When MoneyWeek was founded 25 years ago, analysis and commentary in the industry and the media included a range of sectors, countries and assets every week. Coverage began to decline after the financial crisis and worsened as the tech boom and the strong dollar sucked in capital. Now, many areas are neglected for long periods.

Investors are noticing emerging markets again

Consider emerging markets. I wrote about this shift relatively recently, but it bears repeating. After ages in the doldrums, they are having a good year: the MSCI Emerging Markets index is up by 16% in sterling terms in the first nine months (developed markets are up 8%, the US is up 6%). Yet that scratches just the surface of the changes: within the EM universe, India – the main bright spot of the past decade – is off 8%, while China has rebounded 29%. Korea is up 44%. Emerging Europe and Latin America are all doing very well. One cannot argue that there have been major economic or political shifts in most of these countries to change the case for them. The conclusion is that many are simply being noticed once more as flows into the US slow down.

The wider point here is not about emerging markets, but about the merits of keeping some of your portfolio in assets that are sensibly valued even when they are lagging. As private investors, we don’t need to worry about measuring our performance against a benchmark. Our goal is not to wager everything on the top-performing stocks and collect a performance fee. We aim to maximise our odds of earning a solid return and minimise our risks of devastating losses. Paying attention to out-of-favour assets is part of this.

As a final note, the MoneyWeek Wealth Summit – our annual event and MoneyWeek’s 25th birthday – on 7 November in London will run along these lines. Yes, it’s called Turmoil, tariffs and Trump 2.0. Yes, we have a session on AI. But our speakers will be looking at growth, value and wealth-preservation opportunities to suit a world that is mostly not America.

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The rise of artificial intelligence (AI) has made it incredibly easy for criminals to attack computer systems. Defending against these attacks is now at the front of mind for many of the world’s businesses and consumers. Indeed, a quick online search for the word “cyberattack” shows the scale of the problem. At the end of August, US AI company Anthropic said its technology had been “weaponised” by hackers “to commit large-scale theft and extortion of personal data”. It said its tools had been used to hack 17 organisations, including government bodies. And that’s just one headline.

So it’s no surprise an arms race has developed between cybercriminals and security experts. Okta (Nasdaq: OKTA) is one of the businesses in the vanguard. The US firm offers a platform that enhances security by verifying users’ identities. It provides secure identity verification, single sign-on (SSO) and multi-factor authentication (MFA) to protect identities and enable users to access apps from any device.

How Okta missed out on a rally

SSO allows users to sign on to multiple platforms with a single set of credentials, removing the need to remember numerous passwords. That’s especially important as AI’s ability to crack passwords improves. The current best practice for passwords today is to use unique, randomly generated pass phrases of 12-16+ characters, combining uppercase letters, lowercase letters, numbers and symbols. Many users resort to simple, easy-to-remember passwords and reuse the same password across multiple platforms.

Okta’s MFA provides other authentication methods to approve a sign on, adding a critical layer of security. It’s a step-up from the two-factor authentication process that’s become universal in the banking industry over the past five years. Two-factor authentication comprises two forms of identification, such as a password and a code sent via text message. MFA can include three or more layers, including biometrics and a random number code generator app.

Demand for the company’s authentication software is brisk. Okta is forecasting sales of just under $2.9 billion for the 2026 financial year, up from $234 million in 2021, a compound annual growth rate of 36.1%. However, over the past five years, the shares have lost 55% of their value and Okta has missed out on much of the AI-fuelled rally that’s taken place over the past 12 months.

There are two reasons for the company’s lacklustre performance. Firstly, while revenue has grown exponentially over the past five years, it has slowed in the past three, falling to a compound annual growth rate of about 15%. The second issue was that in 2022, the shares fell by more than 70% after it was revealed that hackers had stolen information on all users of its customer support system in a network breach. It has taken Okta a few years to conduct a thorough review of this breach and make changes to stop it happening again.

Okta's return to growth

Okta appears to be moving past the issues that have plagued the business over the past three years. Its second-quarter earnings release blew past Wall Street and management expectations. A key part of the growth came from US government contracts. Despite Trump’s plans to cut spending, the overall trend across government contracts was positive, according to the company. Overall for the quarter, the company’s net retention rate, a metric to show growth with existing customers, came to 106% in the quarter, unchanged from three months ago. This rate, according to UBS, should accelerate over the coming quarters as the headwinds of the Covid-cohort of customers roll off and Okta returns to organic growth with its new, improved tools.

Management believes there’s a huge opportunity to profit from the growth of AI agents, autonomous software systems powered by generative AI that can reason, plan and execute tasks. This market is expected to grow from $5.7 billion in 2024 to $52.1 billion by 2030, according to the Boston Consulting Group, with a compound annual growth rate of 45%. Okta has built a niche in agent-to-app and app-to-app access, and last month it paid $100 million to acquire Axiom, a start-up specialising in non-human identity security.

Despite its potential, there’s still scepticism surrounding the company and its outlook. This could present an opportunity. Right now the shares are trading at a forward price-to-earnings ratio (p/e) of 27.1, on UBS estimates, falling to just 16.6 by 2030. Strip out Okta’s $2.4 billion projected year-end net cash balance ($13 per share) and the ratio falls to 23. The company’s cash generation is even more impressive. It’s trading at a free cash-flow yield of 4.8%, making it somewhat of an outlier among tech stocks. For fiscal 2026, UBS has the company generating a free cash flow of $819 million with a free cash flow margin of 28.4%.

Okta’s valuation also appears cheap compared to Palo Alto’s recent acquisition of CyberArk. The two companies both specialise in securing access points within networks, with CyberArk focusing on the mission-critical, highest risk accounts. Still, Palo Alto paid $25 billion to get its hands on the group’s technology, for a business generating just $1.3 billion in annual recurring revenue as of the second quarter. Analysts believe the deal could be a net positive for Okta’s shares due to the dwindling number of opportunities in the space. UBS also believes the deal could be a positive development for Okta’s sales as customers look for an independent option, one that’s not controlled by one of the tech sector’s most prominent players.

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In a briefing to reporters last week, Sam Altman, the founder of ChatGPT maker OpenAI, mused that the valuations of AI companies were being driven way too high. “When bubbles happen, smart people get overexcited about a kernel of truth,” he said. “Are we in a phase where investors as a whole are overexcited about AI? My opinion is yes.” That matters. Altman is the poster boy for the AI boom. ChatGPT has become by far the best-known brand in the emerging industry. Earlier this year it raised another $40 billion in funding, at a valuation of $300 billion, more than double the size of the UK’s largest firm and the largest sum ever raised by a private technology company.

Altman is not alone. Earlier this year, the chairman of China’s tech giant Alibaba warned that the explosive growth in AI data centres meant supply would very soon start to outstrip demand. Meanwhile, it emerged last month that Meta, the owner of Facebook, Instagram and WhatsApp, has frozen hiring in its AI unit, hardly a sign of confidence. We might expect the firms with fund-raising rounds and stock valuations riding the boom to be cheering it all the way. Instead, they are starting to caution that it is reaching dangerous territory.

They have a point. “The difference between the IT bubble in the 1990s and the AI bubble today is that the top 10 companies in the S&P 500 today are more overvalued than they were in the 1990s,” warned Torsten Slok, chief economist of asset management firm Apollo, in a note to investors over the summer. It is not just private companies such as OpenAI, or Anthropic, now worth $170 billion, or Elon Musk’s xAI, now worth $50 billion. Chipmaker Nvidia has become the biggest company in the world, with a value of more than $4 trillion, on the back of booming demand for the semiconductors that power smart chatbots. Firms such as Microsoft and, indeed, Meta, with a stake in the industry, have soared to record highs. There is a lot of hype, and investors have been piling into any company that has a stake in the boom. Indeed, the gains in the stock market this year have been almost entirely driven by AI. Strip that out, and all the major indices would be completely flat.

Why would AI barons warn of a bubble?

The AI barons may have an eye on their costs when they caution that it can’t last. Salaries for a small number of AI engineers have been soaring, with reports that Meta, for example, has paid up to $100 million in salary and stock options for top researchers. They may hope they can bring that under control by warning of a bubble. Likewise, they may be hoping to get some of their backers to take a more realistic view of the value of some of the leading companies, so they are not disappointed if they turn out to be worth less than they thought. If the bubble does burst, a lot of good companies will get caught up in the storm.

If AI proves to be anything like the internet when it first emerged in the late 1990s, we will see huge amounts of capital poured into the industry, with valuations soaring, followed by a massive collapse, and the slow emergence of a more durable industry of lasting significance. But the good companies get caught up in that collapse just as much as the bad ones. Amazon’s share price fell by 90% when the dotcom bubble burst and only survived with a round of ruthless cost-cutting. Shares in Apple fell from $150 to just $13, but it recovered to become one of the biggest companies in the world. Many other companies disappeared completely, despite huge backing from investors: Pets.com, for example, despite an $80 million IPO, and Webvan, despite $800 million of investment. Perhaps they would have turned into big businesses if it weren’t for the crash.

Any company that is not yet financially self-sufficient could easily get destroyed. Even a giant such as Meta is vulnerable. AI may well be a bubble. Many of the valuations look insane, and it’s hard to believe profits will ever be substantial enough to justify them. Even so, it is very risky for the leaders of the industry to call that out. If the bubble bursts, things will get out of control very quickly, and it will take down many good businesses along with the flimsy ones. The AI tycoons may end up as the authors of their own demise.

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Two companies – Nvidia and Microsoft – each are worth more than $4 trillion. Together, that’s more than India’s and Japan’s combined annual output. Price is what you pay, as Warren Buffett put it. Value is what you get. Our question for today: how much value will investors get from the Magnificent Seven?

Our Law of Conservation of Value tells us that prices cannot stray too far or too long from value. And value depends on output. Investors ought to be able to look to a future stream of income and from it earn their money back, and more. Even in the dotcom bubble in 1999, the top firms were not as valuable or as concentrated as they are today. Nvidia, Microsoft, Alphabet, Apple, Meta, Tesla and Amazon – together, these firms make up a third of total US stock market value, an amount roughly equal to China’s GDP.

Part of the appeal of these stocks is that they are widely believed to be taking advantage of AI technology. In the case of Nvidia, of course, that is the central appeal. But the others are investing heavily in AI too. In 2024 and 2025, Meta, Amazon, Microsoft, Google and Tesla will put more than half a trillion into AI. The revenue from these investments is expected to be around $35 billion. Amazon, for example, has invested more than $100 billion, which is thought to generate an extra $5 billion in revenue.

We don’t know how reliable or meaningful these figures are. What we do know is that they aren’t very impressive. As in the dotcom boom of the late 1990s, AI is not paying off. Huge investments are being made in the hope of creating AI-based wealth. But so far, the output doesn’t measure up.

You can go to ChatGPT, for example, and pay for the service. Many people use it occasionally – including us. But few pay for it – also including us. This would be fine, except that so much investment has gone into AI development that anything less than spectacular results will look like failure. One estimate, from Goldman Sachs, showed that the Magnificent Seven big tech stocks would have to produce $600 billion in extra annual revenue to make sense of their investment.

How will the AI boom end?

The appeal of the dotcom era was the idea that more information would lead to higher GDP growth rates with less need for capital investment.

Costly trial-and-error expansion would be replaced by less costly, more precise, knowledge-driven growth, or so it was believed. It didn’t work out that way. Productivity and growth rates generally softened throughout the 21st century. Capital investment went down. The internet/information revolution did not compensate for the decline; it seems to have made it worse. In the last half century, the rise in labour productivity in developed economies has declined from about 2% annually in the 1990s to 0.8% in the last decade, says the OECD think tank.

Will that change with AI? Probably not. The defining curse of the information revolution was too much information. It piled up. It got distorted and misinterpreted. It took time and money to store and sort. Much of it was false or useless. Now cometh AI, adding to the problem. Which leaves, at least for now, AI and the Magnificent Seven in an old-fashioned bubble. Stock prices are far higher than actual sales and profits can account for. So one way or another price and value will have to come back together. Some breakthrough might lead to a big burst of gains and growth. More likely is that stock prices will fall.

For more from Bill, see bonnerprivateresearch.com

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Most bookshops have a section devoted to business titles, and mostly they fall into two categories. In one you fill find volumes with titles such as Flexagility^TM – The Secret of Delighting Customers and Raking in Enormous Profits. You’ll see them in airport bookstalls next to the self-help section. In the other you’ll find titles such as Fleeced, Poisoned and Spied Upon – How Capitalism is Fuelling Inequality, Damaging our Wellbeing and Destroying the Planet. Books in this category are written for people who welcome confirmation of what they think they already know. These words are lifted from a business book that falls into neither of these categories: The Corporation in the 21st Century: Why (Almost) Everything We Are Told About Business is Wrong, by economist John Kay. It is intended, as Kay says in his introduction, for people who would never normally pick up a business book, but who would welcome an “intellectually serious, even sometimes challenging, approach” to the subject, and who might even be led to conclude that a career in business has something more to offer than just financial reward. Kay succeeds in his aim. The result may be, as Ed Smith says in a review for the New Statesman, a book without a theory. But that is no criticism – “because instead of theory it has wisdom”.

"Medicine is for the people. It is not for the profits"

The history and fate of the modern business corporation has been a strange one. On the one hand corporations have delivered products and a standard of living without which our lives would be economically and culturally impoverished, says Kay. And yet most intelligent and thoughtful people have a negative view of business, especially big business. Strangest of all, business in the 21st century describes and conceives of itself in terms that actually “invite that negativity”. For Marxists and their modern descendants on the left, businesses are the site of class struggle, where ruthless capitalists, through their ownership and control of business assets, sweat their exploited workers to maximise profit and fill their pockets. Economists and thinkers on the right have done little to challenge or alter that view except to add “and a good thing, too”. The details of economists’ vision and theories have varied, but all basically see business as an economically efficient arrangement for minimising inputs in terms of labour and resources, and maximising outputs in terms of goods and profits. Business leaders have accepted the characterisation and acted accordingly – to their own misfortune.

Kay opens his book with a case study from the pharmaceutical industry (and expands on the example with many more from other industries in the course of his 448 pages). In the early 20th century, the rise of scientific medicine was gradually replacing older medical practices that relied on folk wisdom and snake oil. The anti-bacterial properties of penicillin were first observed in 1928, but neither government nor business were especially interested until the outbreak of World War II concentrated minds. Howard Florey and Ernst Chain at Oxford University, who were seeking to synthesise the antibiotic, found a supporter in George Merck, the president of the firm that bears his name to this day. Merck was one of the first companies to recognise the life-changing potential of pharmacology and to benefit from it. Merck’s oldest son, also called George, turned the company into a research-oriented business, and it has been listed on the New York Stock Exchange since 1927. The aim of the business was articulated by Merck in 1950, when he told medical students: “We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered it, the larger they have been”. For many years Merck topped Fortune magazine’s list of most-admired companies.

Maximising profits at all costs

The early history of the industry would tend to confirm that this was the guiding credo of all such businesses. But the tide turned when drug companies came under pressure from Wall Street to demonstrate their commitment to securing value for shareholders. Merck’s counterpart at Pfizer had a somewhat different credo: “So far as humanly possible, we aim to get a profit out of everything we do.” Jim Collins’s 1994 business classic Built To Last showed that, judged by stock returns alone, the likes of Merck outperformed their peers. Until, that is, Merck stumbled. It succumbed to the profit-maximising logic, becoming “totally focused on growth” instead – and hence took a starring role in Collins’ 2009 book, How The Mighty Fall. Merck had to withdraw a painkiller amid recrimination and lawsuits in 2004 when it had marketed the drug not just for the minority of patients who would derive benefit, but for the many who might just as well have taken aspirin.

Many more-egregious examples of wrongdoing motivated by profit-seeking will no doubt spring to mind, and not just in the pharma industry. But the point brought out by Kay is that this short history is depressingly typical of modern business. Its products may save millions of lives and improve the quality of life for almost everyone. Its revenues may fund new research and make large profits for investors, including retirement funds. The profits may support philanthropy on a large and global scale. Yet a turn to focus on maximising profits at all costs, and the misbehaviour that predictably follows from that, brings a fall, and explains why the public came to mistrust big business.

It is a “central argument” of Kay’s book that “by excessive emphasis on the transactional nature of business relationships we have undermined not only the relationship between business and society, but also the effectiveness of business, even in transactional terms”. Boeing was a world-leading engineering firm making superlative products that transformed the world until a change in the culture led to a focus on profit. The end result was aeroplanes falling from the sky. General Electric was for much of the 20th century regarded as the best-run company in the US. A ruthless turn to focus on “shareholder value” from the 1980s onward led in the end to the collapse of the firm. Shareholder value disappeared with it. Bear Stearns was once an investment bank that proclaimed, “We make nothing but money”. As Kay drily notes, it “ended up not even making any of that”. The last people to benefit from the pursuit of “shareholder value” are shareholders.

The pursuit of profits vs creating 'rents'

But doesn’t the pursuit of “shareholder value” describe the reality of what businesses are and should be? Are not businesses in fact owned by their shareholders and is it not a corporation’s “social responsibility”, as Milton Friedman put it, to maximise its profits? That view is simply not tenable, says Kay. To start with, figuring out who really “owns” modern corporations, with their complex web of financial, contractual and regulatory obligations, is no easy matter, and even in jurisdictions most friendly to the concept of shareholder ownership (such as the US), actually exercising the rights of ownership and control is far easier said than done. In big modern corporations, it is more likely to be senior management that is in ownership of a business’s general strategy, but even then, the rights and freedom of action associated with that ownership are unlikely to extend as far as might be assumed. The workers themselves, for example, will be bringing not just themselves to work, but knowledge, talents and skills that are not easily ordered about or replaced. Even the things the business actually “owns” may be hard to pin down – Amazon does not own its warehouses or the goods in them; Apple does not make its smartphones.

Success in business today is secured rather by “assembling the collective knowledge of many individuals and by developing collective intelligence – a problem-solving capability which distinguishes the firm from its competitors”. The modern corporation’s essential role is defined, then, not so much by the capital it can amass, the assets it owns, or the numbers of workers it can “exploit”, or by how efficiently it does this or makes tangible things, but by its ability to marshall human capabilities in a unique way that answers to customers’ needs. Success in this endeavour is hard to replicate by competitors, which means the corporate landscape is dominated by monopolies. And what monopolies earn as a reward for achieving that status is not so much a return on capital, or profit, as it is a “rent”. If Lionel Messi were not employed as a footballer, his earnings would be modest, as were the incomes of even the greatest footballers until recent times. The fact that his talents are greatly desired by modern football businesses, which skilfully attract viewers and advertisers in competitive global markets, means he can capture a fortune. The difference is known as economic “rent”.

And that is something to be welcomed. Economic rent – not the same thing as the rightly deplored “rent-seeking” of those who seek to appropriate some of the value created by others, by, for example, political means – is “not an anomaly, but a central and valuable feature of a vibrant economy”. Progress happens when people and businesses create rents by doing things better. The industrial revolution replaced manual labour with machines. Its further development is seeing physical labour replaced with “collective intelligence”. The hallmark of a successful business today is “harnessing collective intelligence that isn’t common property”. Apple, Amazon, Microsoft, Tesla, SpaceX – many modern success stories are based not so much on making something new (mobile phones, shops, computers, electric cars and space rockets were not exactly unknown before the advent of these firms), but on bringing together the right talents to turn what we’re all familiar with into something brilliant we can’t resist. Creating such collective intelligence successfully involves doing many things well, but rarely the things that would be visible to the Marxist or right-wing theories of what a firm is and how it works.

A transactional account of business is hence not just repellent, but mistaken. It does not describe how successful business works – or could work – in modern society. In the modern world successful commercial relationships are not simply instrumental and transactional, they are “social and embedded in a wider framework of communities and teams”, and Kay’s hope is that a “better account of how business and its stakeholders flourish will point the way not just to a better understanding of business, but to the better conduct of business itself”. Just what adopting Kay’s view would mean for business and public policy will be the subject of a successor volume. So those wondering just where Kay’s account differs from the familiar conflict over shareholder and stakeholder visions of capitalism will have to wait for that. In the meantime, readers of all political and ideological persuasions will benefit from reading this clear-eyed account of modern business – of why it should be celebrated, and why it urgently needs reform.

The Corporation in the 21st Century by John Kay (Profile Books, £12.99) is out now in paperback

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Of all the things that Donald Trump could claim are “rigged” against him, the number of jobs being added in the US economy is one of the oddest. Yes, there are real problems with statistics in many countries, and the situation has got worse since the pandemic. Firing the head of the statistics agency, as Trump did last week, is unlikely to fix that, especially if the replacement is picked for loyalty to him. However, the 258,000 cut to the estimated jobs added in May and June is completely in line with what you’d expect once in a while.

Data like these are prone to big revisions, sometimes long after they are first reported. One difficulty in trying to spot turning points in the economy using trends from past data is that the revised numbers we have now can sometimes be quite different from those reported at the time. Much of the information that statistics agencies collect is important in trying to understand long-term trends. But they are not reliable real-time signals. Investors, like Trump, could afford to take each release a little less seriously.

Earnings estimates are transparently biased

In fact, the prize for the most manipulated statistic in markets surely goes not to a government department, but to the private sector. Earnings estimates – and the ability of companies to beat them – are transparently a rigged game, especially in the US. If analysts’ estimates were an unbiased forecast of earnings, you’d expect companies to beat them 50% of the time and miss 50% of them. This doesn’t happen – on average, companies beat estimates significantly more often.

The reason is that company management – most blatantly in the US – guide analysts to lower forecasts as the reporting date approaches. They can then report earnings that beat the forecasts, and the positive surprise buoys the share price. However, if you compare reported net income for each quarter to forecasts made further in advance (three months before the quarter), “these ‘surprises’ are somewhat less impressive or not there at all”, says Andrew Lapthorne of Société Générale – see chart above.

Of course, earnings growth matters. Europe or emerging markets look better long-term value than America – but not if S&P 500 earnings keep growing much faster than the rest of the world. If the US continues to excel (which the chart suggests is increasingly a bet on the Magnificent Seven), the S&P 500 might yet come out ahead. But that has little to do with whether companies can beat short-term forecasts that they’ve carefully talked down.

So when the headlines say – as they doing right now – that more than 80% of S&P 500 companies are beating estimates, it is wise to be a bit sceptical. Does this mean that the corporate sector and the US economy is doing even better than expected; or does it suggest that the upheaval as Trump brought in his tariffs in April proved an excellent opportunity to guide down earnings aggressively and ensure a solid surprise?

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Trump’s EU deal will help blue-collar workers.” So believes Nicole Russell, a columnist for USA Today, “Critics can hate Trump’s personality all they want,” she says, “but the president’s ability to forge trade deals that favour American workers shouldn’t be discounted.” The gist of Russell’s argument is that the deal includes requirements for Europe to buy energy and military equipment from the US. This kind of stuff is made by people wearing hard hats or wielding power tools – that is, by “blue collar” workers.

Russell must not have much free time. If she had, she might have thought this through a bit further. In the first place, why should US government policy favour one group of workers (blue collar) over another group (white collar)? In the second place, the tariffic negotiations also favour very big businesses – oil and defence. How is that a plus for the guys who mostly work for small businesses?

In the third place, the same policies that will supposedly favour US industry output with a 15% tariff on imports also call for taxes of 50% on steel and aluminium, which must be paid by US carmakers and ultimately by car buyers. What good does that do the guy who needs wheels to get to work?

In the fourth place, who does she think pays for the tariffs? Tariffs are essentially a tax, paid by American importers – and then passed along to US consumers. White collar, blue collar or no collar at all – they’re all going to pay. Who else would? Dogs don’t pay tariffs. Inanimate objects don’t. In the end, all government revenues must come from the people.

Has Trump "achieved the remarkable"?

None of it makes sense. The US is running a $2 trillion deficit and heading for a financial crisis. But the trade deals are seen as a political “win” for Trump.

Trump has, says The Wall Street Journal, “achieved the remarkable: raising tariffs by more than the notorious Smoot-Hawley Tariff Act of 1930, while – it appears – avoiding the destructive trade war that followed”. Including the deal struck with the EU, the US will impose an effective tariff rate of about 15% on its trading partners, by far the highest since the 1930s, according to JPMorgan Chase.

But will the deals stick? Trump’s big trade deal with Japan is already falling apart, says The New Republic. A report from the Financial Times shows that US and Japanese officials aren’t seeing eye-to-eye on what exactly was agreed. Mireya Solís of the Brookings Institution told the FT “both sides made promises we can’t be sure will be kept” and “there are no guarantees on what the actual level of investments from Japan will be”. It’s not exactly a done deal with Europe either. Fred Hutchison, CEO of LNG export group LNG Allies, told Energy Intel that both sides can do a lot to encourage additional commercial deals in the LNG sector, but “neither government has any control over what happens commercially”.

Trump got his deals thanks to leverage over other countries’ deep economic and security ties to the US, says the WSJ. But in the coming years, “that leverage will wane as those countries cultivate markets elsewhere and build up their own militaries. The resulting international system will be less dependent on the US – and less stable.”

The markets are less stable too. Already teetering at the tippy-top of their trading range, stocks have become even more overvalued. More importantly, Trump has raised the cost of trading with the US. He must also have increased the desire not to trade with it at all.

For more from Bill, see bonnerprivateresearch.com

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There are two obvious points to make about emerging markets at a time like this. One is that the idea of emerging markets as a single type of investment feels nonsensical and has done for a long time. The emerging-market universe covers a huge range of economies that have far less in common than the developed-market universe, which is already diverse enough. The other is that – regardless of the above argument – one rule still holds: when the US dollar goes down, emerging markets are much more likely to go up.

We have seen the same pattern playing out again this year. The MSCI USA is up by about 7% since the beginning of January, while the MSCI Emerging Markets is up by almost 16% in US dollar terms. Currency moves play a part here, but they are not the whole story: the index is up by almost 13% in local currency terms. This does not mean that every emerging market is doing well. India is notably weak. So is most of Southeast Asia. The mainland China A share market is unimpressive. Still, Hong Kong-listed shares, Korea, Eastern Europe, most of Latin America and the Middle East (excluding Saudi Arabia) have all been fair to outstanding.

Will emerging markets outperform others?

The natural explanation for why a weaker dollar and stronger emerging markets go together is down to capital flows. The dollar is weaker because money is flowing out of US assets (or at least no longer flowing into them) and instead going elsewhere. That money is not only heading into emerging markets, but economies that do not have deep pools of domestic institutional investors are very sensitive to foreign flows and so small shifts can make quite a difference.

The question then is whether this short-term rally can turn into a longer-term bull market. Certainly, the MSCI Emerging Markets looks cheap on a forward price/earnings ratio of about 13. The differential between this and the USA (on a forward p/e of around 23) is far wider than it was a decade ago. The caveat here is that emerging markets looked even cheaper back then (when the forward p/e was about 11). Yet subsequent returns were disappointing, which was in part because earnings growth was weak, though emerging economies grew faster (on average) than developed economies.

This will need to change for the rally to run – and there are signs that it may. Earnings per share for the MSCI Emerging Markets rose 10% last year and JP Morgan forecasts are for a further acceleration to 17% this year (although in this environment, forecasts should be treated as even more uncertain than usual). If so, this should turn into a virtuous circle: better results from emerging markets encourage more investment, more spending and lead to more growth. Note too that even though emerging markets have had a strong 2025 so far, they have actually lagged behind European markets. That feels natural at this stage, since pessimism about Europe has been extreme. However, if the rotation away from the US continues, one would expect them to ultimately outperform.

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We were probably wrong about tariffs. Yes, of course, they were always a bad idea and still are. Anything that interferes with our ability to freely trade with each other will make us poorer, with less choice and lower quality goods and services. After the Trump administration’s “reciprocal” tariff bomb blew up in its face, in April, we thought tariffs would quietly go away, like a man who just made a fool of himself at a party. That’s about what happened with Canada during Donald’s first term. His team squawked about “unfair” trade with Canada and tore up the North American Free Trade Agreement (Nafta). Then, after protracted negotiations, it ended up with something very close to Nafta, and trade went on much as before.

We thought the negotiations with other countries would go the same way. But no. Even before the 1 August hikes, tariffs are at a 70-year high. And going higher. The details change by the day, but it’s clear who will pay: American companies and consumers. Yale University researchers project that Trump’s tariff strategy will raise costs for US families by $2,400 this year.

Tariffs can be used in a variety of vain and foolish ways – to promote foreign-policy goals, to influence other countries’ internal politics, to raise drug cartels’ profits, to pay off big political donors, and generally to make a mess of the economy. They can also be used to enrich those who impose them. An investigation by ProPublica has revealed that federal officials across multiple agencies sold stocks before Trump’s tariff announcements caused major market declines.

Long-term impact of Trump's tariffs

Tariffs are a tax and taxes are supposed to be “fair”, which is to say, you’re not supposed to tax a Republican more than a Democrat or a plumber more than a carpenter. True, tax loopholes and credits have been used for decades to reward friends, punish enemies and drive the money where the feds want it to go. Want people to buy electric cars? Give them a tax subsidy. Want them to stop smoking? Impose a tax on cigarettes. But at least Congress – the people's parliament – has a say in who is taxed and how. Not so with tariffs. The president can tariff individual countries and give different rates to different nations. He can also target individual industries, regions and, like the bills of attainder that the US constitution tried to avoid, he can single out specific products and individual companies.

Washington has, for example, just imposed a 17% tariff on US imports of tomatoes, almost all of which come from Mexico. As Bloomberg notes, the move comes just days after Trump unveiled plans to impose a 30% tariff, beginning 1 August, on many Mexican products that don’t fall under the USMCA trade agreement he negotiated in his first term.

Neither Democrats nor Republicans will want to give up this kind of arbitrary power. So, tariffs may become a more-or-less permanent part of the US’s end-of-empire finances – a sneaky consumption tax, which gives the feds more money to spend, more opportunities for corruption, and another cudgel with which to beat anyone who stands in their way. Whatever fiscal benefit the feds get from higher tariff taxes – $300 billion is expected this year – is likely to be offset by lower GDP growth and lower tax receipts elsewhere. And over time, shackled with tariffs, the US economy will become less and less competitive.

For more from Bill, see bonnerprivateresearch.com

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Following a trip in May to a US investment conference to meet with company bosses, James Harries, the manager of STS Global Trust, reported that, “as ever one cannot fail to be impressed by the sheer scale, dynamism and competitive zeal of US corporates and the wider economy. There was widespread angst relating to tariffs, the unpredictability of policymaking and the stress on the consumer, but this had yet to show up in end demand.” Perhaps most remarkably, “not one company mentioned the word ‘Trump’”. At the time, it seemed that business leaders, fund managers and pundits in the UK were talking about little else. The consensus that had prevailed at least since his inauguration, if not well before, that Trump was mad, bad and dangerous, is being slowly transformed into a more measured analysis.

Jonathan Sumption, a former senior judge on the UK’s Supreme Court, remains firmly in the critics’ camp. He has warned that Trump’s bullying tactics, intolerance of even mild dissent, readiness to use presidential prerogative to drive through his agenda and vocal threats to those who stand in his way bear all the marks of an aspiring dictator. The checks and balances of the US constitution, with its division of power between the executive, Congress and the Supreme Court, and between federal, state and local government, has been steadily undermined, says Sumption. The muted opposition to all his proposals must mean that opponents and sceptics have been cowered into submission – that Trump has captured the Republican Party and has made himself unaccountable. The approval of presidential appointments, including cabinet positions, is just a rubber-stamping exercise.

Donald Trump is not Adolf Hitler

This view is echoed by Filipe Campante and Ray Fisman, writing for Bloomberg. “The second Trump administration has undertaken a sweeping expansion of presidential power,” they write. “The White House is attempting to usurp some of Congress’s spending powers and to reclassify civil servants so as to make them easier for the president to fire. He deployed the National Guard on California over the governor’s objections under the auspices of responding to a rebellion.” Campante and Fisman argue that the power of the courts is being challenged, students detained and universities bullied into submission. “The system that is currently under threat has endured periods of remarkable stress but democracy survived and thrived by responding to these challenges. This track record led to an understandable and almost unshakable belief that American democracy was unassailable.”

Now, however, the two-party system has turned from being a barrier to extremism (as voters converge to the centre) into a trap, say Campante and Fisman. “If extremist or anti-democratic forces somehow manage to capture one of the two major parties, the system would switch from being a barrier to extremism into an accelerant. Helped by the rise in partisanship, which keeps voters loyal, Trump and his loyal proxies can credibly threaten every Republican elected official with the destruction of their political career.”

Niall Ferguson, the author and historian, takes a very different view. “People on this side of the Atlantic don’t remotely understand him,” he says. “He is not Mussolini, much less Hitler. It is enormously stupid to compare Berlin in the 1930s, when everyone was in uniform, militarism was rife and lawlessness everywhere, with America now. Trump is recognisably in the American tradition of populism, with tariff policy deeply rooted in the late-19th-century politics of president William McKinley.”

As for the idea that the US is teetering on the brink of authoritarianism, forget it: Trump’s use of executive orders is comparable with that of F.D. Roosevelt in 1933. Trump owes a large debt to Richard Nixon, who first took him seriously as a political figure. Nixon shocked the world in 1972 by meeting Mao Tse-tung, severing the dollar’s link to gold a month later, and by introducing a general 10% tariff.

Ferguson also compares Trump to Reagan in his restoration of military deterrence and the use of surgical strikes. “It reminds people of the superiority of the US military” and that “will have shocked Putin”. The bombing of Iran showed that Russian air defences are useless. German rearmament – precipitated by vice-president J.D. Vance telling Europe that if it doesn’t do something about its defence, Nato was over – is also a disaster for Putin. “Russian attacks on civilians are a sign of desperation as it can’t hit military targets. Putin has overplayed his hand and a war of attrition is unsustainable.”

These developments also make confronting the US a worse idea for China than it was just a few weeks ago, says Ferguson. A Taiwan crisis is still a strong probability, but Xi Jinping “is not a well man and doesn’t have long”. Trump’s successor may not be as amenable to a deal as Trump is, so “the stand-off will reach a culmination in the next three years”. Ferguson believes that China is more likely to blockade Taiwan than invade. After all, “when did the PLA last fight”? “Ukraine would be the last place in the world where I would want to get into a pub fight,” he says. “Taiwan would be my first choice.”

Trump’s tariff masterstroke

As for Trump’s widely derided tariffs, Torsten Slok, chief economist at Apollo Global Management, wonders if Trump hasn’t outsmarted the world with his tariff plan by keeping tariffs below his threatened rates to ease uncertainty while still producing $400 billion of annual revenue for US taxpayers. “This would seem like a victory to the world; trade partners will be happy with tariffs of only 10%.”

Dr Pippa Malmgren, a former US presidential adviser, gives Trump a mark of nine out of 10 for how well he’s doing. “His electoral base loves the changing of the power structure around tariffs, the fact that its succeeding in compelling other governments to negotiate not just on trade but on a variety of other issues.” It might seem as though his attempt to control the budget deficit and hence government indebtedness is failing, with Elon Musk disillusioned about the administration’s failure to slash public spending. Malmgren, however, says that “getting spending under control, will take many decades but the commencement of the process has gone incredibly well. This means addressing the issues of why money is being spent, what it is being spent on and whether it should be. His base is also very happy with his decisiveness on illegal immigration.” This has increased 50% year on year in the UK; attempted crossings of the US-Mexico border have dropped by more than 90%.

Trump’s critics are expecting (or is it hoping for?) a US debt crisis, particularly after the extension of the temporary tax cuts enacted in 2017. In Argentina, Javier Milei’s drastic cutting of public spending has turned an unsustainable deficit into a primary surplus (before finance costs) and is now being rewarded with an economic boom. That was never possible in the US. But it is far too soon to say that Trump has given up on cutting government expenditure; a 10-year US Treasury yield below 4.4% does not suggest that the bond vigilantes are particularly worried. As Ludovic Subran, chief economist and investment officer of Allianz, says, “it’s quite impressive to see how much the market is pricing in the pragmatism of President Trump. A lot of the uncertainty that was really peaking in April and May is now fading away.” You may not like Trump personally, but he is proving effective and markets are responding.

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When Donald Trump began unveiling his tariff plans in April, investors feared we were entering a sharp and sudden bear market. Stocks dropped sharply around the world, with the US down 10% in two days. Yet the plunge was short-lived: stocks rallied as abruptly as they had dropped. The US and other major global markets have gone on to new highs. So did investors get rattled too easily – or are they too sanguine now?

On the optimistic side, the deals that the US is striking with trading partners look less damaging than everybody feared in April. Yes, tariffs are unwelcome. They bring complexity and friction to global trade and add costs. Those costs will be borne to varying extents by the entire supply chain between foreign exporters and US consumers. Yet these deals still reduce the risks of a wider and more damaging trade war.

The pessimistic take is that America’s views on the rest of the world have changed. It is backing away from principles that it has championed for decades to become insular and mercantilist. Policymaking is more arbitrary and unpredictable. We can’t even be confident that these deals – which are still broad frameworks – will be honoured, let alone what might come in the next three-and-a-half years and beyond.

US stocks vs the world

So the rest of the world is reacting in a rational way. Countries are striking deals with the US to minimise immediate disruption, but over the longer term they will have to recognise that the world is changing. Trade patterns and alliances will shift. CEOs are also trying to flatter Trump by announcing large investments in the US to avoid being targeted – we are seeing plenty of this from pharma firms in an effort to ward off threats of high tariffs on imported drugs. Yet it remains to be seen how much will be puffing up investment that was already in the pipeline and how much actually materialises.

We will be looking at how all this could play out at Turmoil, Tariffs and Trump 2.0, our next annual MoneyWeek Wealth Summit on 7 November (tickets have just gone on sale at moneyweekwealthsummit.co.uk/2025). However, in stock market terms, there is one obvious idea for managing these risks.

US stocks have so far outstripped the rest of the world over the past 15 years that they now make up 60%-70% of the global market, depending on which index you track. This has been driven by superior earnings growth, but valuations have also diverged much more than many investors realise.

The MSCI USA trades on 23 times forecast earnings, while the MSCI Europe is on 14. Look back to mid 2016 – about the time the divergence accelerated – and the MSCI USA was on 17 times forward earnings, while the MSCI Europe was on 15 times. So striking a better balance between the US and the rest of the world than a typical global tracker fund doesn’t need to be a bet on whether Trump’s policies will ultimately hurt the US. Doing so is increasingly justified by the growing gulf in valuations.

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Our investment process focuses on companies that are growing revenue, margins and earnings. When you find these three factors accelerating at the same time, there is a good chance you have a stock that’s going to perform well. We often find that companies with these characteristics are at the beginning of a new product cycle, and much of our stock analysis is concentrated on finding those companies.

We marry our fundamental work with macroeconomic analysis, which helps us identify where we are in the business cycle. This informs our risk appetite: aggressive in bull markets, defensive in bear markets. Finally, we use technical analysis to time our buys and sells.

Our style is active, and we like to find stocks exhibiting strong share price momentum, showing that the market validates our fundamental views. In constructing our portfolio, we apply a split approach – core stock selection based on finding long-term thematic winners, and tactical selection driven by the outlook for growth and inflation.

The resulting portfolio tends to vary significantly from both the index and our peer group. We believe that the following three stocks boast considerable upside potential.

Two top investment themes

Palantir (Nasdaq: PLTR) is at the centre of two of the biggest investment themes of today, namely defence and AI. It is a software developer embedded with organisations such as the CIA and the US military, enabling them to interpret and use the huge amounts of data they receive on a daily basis.

Palantir also has commercial applications and helps companies optimise their supply chains and other operational functions. The company is unique in that it doesn’t have any true competitors in terms of the product suite it provides. It is growing revenue at an annual pace of 55% and looks set to continue its strong performance.

Axon Enterprises (Nasdaq: AXON) is the company formerly known as Taser, and it still makes the iconic Taser product. Its mission is to dramatically reduce the number of deaths by firearms, and it has done that over the years as its non-lethal alternative has gained traction globally. It also has a bodycam product, which is where the real potential lies. The bodycam videos the arrests of suspects, and then Axon’s AI software takes the footage and writes up reports for police officers. This saves an average of four hours of police time a day and is one of the few real-world applications of AI today. Axon’s penetration of global markets is still in the single digits, and we believe it can continue its 27% top-line growth.

More bang for the buck

We believe that Dollar General (NYSE: DG) is in the early stages of a big turnaround. The main reason for this is that one of its competitors in the dollar-store sector, Family Dollar, is closing stores at a rapid rate, and in doing so, it is donating market share to Dollar General. Its last earnings call gave this thesis a boost – the company reported accelerating revenue and margins, and the stock jumped 16%.

Concerns over tariffs and household spending have been priced into this stock, in our view, and with the company trading at 0.4 times sales, it is cheap and primed for a rerating.

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British businesses, along with many others across Europe, have always seen the US as the one market they really wanted to crack. It was where they could turn themselves from a regional into a global company. That has started to change.

The US has dropped out of the top three destinations for British manufacturers for the first time in a decade, according to a survey by Made UK. Only 4% of UK-based manufacturers said they would currently consider setting up an operation in the US. Investors are looking elsewhere as well, with a flood of fresh money moving into Europe as the major funds rotate out of US assets. British exports to the US dropped by £2 billion in April, according to the Office for National Statistics, the largest monthly fall on record.

That is understandable. When Donald Trump was elected to the presidency last year there was a wave of optimism that he would run a pro-business administration focused on tax cuts and deregulation. The reality has been very different.

The tariffs have restricted trade, imposed significant tax rises on companies, and threatened to throw supply chains into turmoil. Stocks plunged into a bear market almost as soon as the tariffs were announced, and many US businesses reacted with horror. Worse, the tariffs were chaotically implemented, with levies imposed seemingly at random, and then changed again a few days later. It has been a complete mess, and one that has damaged faith in the administration.

But getting out of the US is also a big mistake. The tariffs were a terrible idea and one that will damage the competitiveness of the economy. But many of them have been lowered already, exemptions have been granted where necessary, and most of the rest will probably be negotiated away in a series of “great deals” negotiated by the president on the golf course. Once it has all blown over, the US will remain the most exciting major economy in the world.

From 2008 to 2025, GDP in the US rose by 87%, according to the World Bank, while in Europe it grew by just 13.5% over the same period. If we rewind to the financial crisis, Europe’s total output was 110% of the US total, but by last year it was just 67%, although, of course, it still has a far larger population.

On any measure you care to look at, the US has been growing at a far faster rate than anywhere on this side of the Atlantic. It has achieved energy independence, mostly by developing fracking, which remains banned in Europe, and is now a major energy exporter. Its tech industry has surged to become by far the most powerful in the world and it is now taking a world-leading position in AI as well. Indeed, its only serious competition in AI is coming from China, with Europe, and the UK, sliding into irrelevance.

Trump’s policies aren’t all bad

Many of Trump’s policies beyond the tariffs will stimulate growth. By offering tax exemptions for overtime, he will encourage longer working hours, and that will boost productivity.

Loosening restriction of bank capital and listings, imposed in the wake of the financial crisis, will make it easier for companies to raise capital, and allow more mergers, and that will help to boost investment.

A lot of the wasteful spending from the Biden era has been scaled back, but the subsidies for semiconductor manufacturing and other high-tech industries are continuing, and that will eventually strengthen its industrial base.

Even the tax breaks for green energy remain in place, with solar power and battery-storage facilities still expanding at a rapid rate across the US, and with extra nuclear capacity now added to the mix. Ironically, it seems increasingly likely that the US will hit the target for a net-zero economy before anywhere in Europe does.

The US market remains a tough one to crack, but there is still more money to be made there than anywhere else. It is hard to see Europe catching up now, or providing the same kind of opportunities. If companies give up on it now, it will only get harder to get back in later. If businesses ignore it because of a few strange decisions by Trump, they will lose out permanently – and that will prove very expensive.

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After two days of marathon talks in London, the US and China have agreed to “roll back” some of the “punitive measures” they had taken and restore the trade truce agreed in May, says Alan Rappeport in The New York Times. The meetings followed a reportedly friendly call between Donald Trump and Xi Jinping last week. Negotiators, led by US Treasury secretary Scott Bessent and Chinese vice-premier He Lifeng, are expected to seek final approval for the “framework agreement” from both leaders; assuming they approve, it will take immediate effect.

Although the two countries reached a 90-day tariff truce in Geneva on 12 May, “deep and fundamental differences remain” – including disputes over “currency manipulation, export subsidies and other non-tariff barriers”, says Linggong Kong in The Conversation. The Geneva deal came under pressure after Washington accused Beijing of “dragging its feet” on an agreement to speed up the export of rare-earths, while Beijing accused the US of being the first to break the agreement by rolling out a wave of fresh measures, including new restrictions on the sale of AI chips and chip-design software to Chinese companies, and cancelling visas for Chinese students. The day after the agreement, Trump also issued an order banning US firms from using Huawei AI chips.

A win-win for both US and China

From China’s perspective, it returned to trade talks with a “strong hand”, says Katrina Northrop in The Washington Post. Its “geopolitical ace card” is its control over much-needed rare-earths, which are critical components in products as varied as cars, fighter jets, iPhones and medical machines. China accounts for 70% of global rare-earth mining and more than 90% of the processing. Yet “for all its bravado”, Beijing doesn’t actually “hold all the cards”.

Economic growth remains weak; it was grappling with a property crisis even before any trade frictions, and exports to the US have declined by a “precipitous 34%” (although this has been offset by increased sales to Europe and Southeast Asia).

China is vulnerable to controls on high-tech exports from the US, particularly cutting-edge semiconductors, which it has not been able to produce domestically, hindering its ambitions to become an AI leader. The US also supplies China with more than 99% of a key export, ethane, and could apply pressure by “stepping up sales of arms to Taiwan”, says Bloomberg.

Nonetheless, the truce is good news, says Matthew Lynn in The Spectator. The “most important single trading relationship in the global economy is starting to get back on track”. But time is short. Trump has only “suspended the tariffs until August” so a “broader agreement” will need to be reached by then. China will almost certainly have to make some “big concessions”, including allowing the US tech giants (Meta, Netflix, et al.) full access to its domestic market, and boosting domestic consumption in order to reduce its trade surplus with the US. In return, Trump could lower tariffs permanently, allowing China to maintain the “export-led growth model that has transformed its economy over the last 30 years” and keep expanding into tech-based industries traditionally dominated by the West. Such a deal “won’t necessarily happen”. However, if it did, it would be a “win-win for both sides” and provide a “huge boost” to the global economy.

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The US has been the centre of the global economy and stock investing for decades, so much so that it has come to seem unassailable.

However, last year saw numerous challenges to the notion of US exceptionalism: a belief that the US is qualitatively distinct and superior to other nations.

A glance at the US stock market’s performance compared to other regions over recent years appears to justify this belief. The S&P 500 outperformed the MSCI World Index (an index that seeks to capture the global stock market) over the last three-, five- and 10-year periods.

But in 2025, US stock market dominance was rocked by several events.

The emergence of DeepSeek, for example, sent the S&P 500 down 1.5% in a single session because it struck right at the heart of the idea that US companies had a de facto monopoly over the development of cutting-edge artificial intelligence (AI).

That was followed by market turmoil in April following ‘Liberation Day’ tariffs, as well as fears that the AI bubble could burst, especially during the second half of the year.

It added up to the FTSE 100 outperforming the S&P 500 over the course of 2025 for just the third time in the last decade.

“Momentum has cooled a little as investors weigh up [US president Donald] Trump drama against what should be a strong earnings season,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown, following the S&P 500’s second consecutive weekly decline in the week to 23 January.

The S&P 500 gained just 1% in 2026 through to that date; the FTSE 100 gained double that amount, while the Euro Stoxx 50 gained 2.6%.

Is the age of US stock market dominance over? And where should you invest for 2026 if so?

The US economy is still going strong, but is that good for stocks?

Revised estimates released on 22 January showed the US economy grew faster than expected, at 4.4%, during the third quarter (Q3) of 2025 – its fastest pace of growth since Q3 2023.

According to Hugh Gimber, global market strategist at J.P. Morgan Asset Management, 2026 “should be a reasonable year for the US economy”, with Trump keen to pull whichever levers he can to get the economy and the stock market on a positive footing ahead of midterm elections in November.

However, analysts at Bank of America have questioned whether or not that is good news for the US stock market. A team of analysts led by Savita Subramanian, equity and quant strategist at Bank of America Securities, published a report on 23 January observing that US stocks (counterintuitively) tend to underperform when GDP and earnings per share (EPS) growth are both high.

“Stocks anticipate recoveries, tend to rally most on ‘disaster averted’ scenarios – when expectations are low,” said Subramanian. The bank’s current GDP and EPS forecast are “more consistent with middling equity returns”.

Subramanian also observed that “the index is top-heavy in AI, not GDP-sensitive stocks” and relatively light in the more cyclical companies that would respond positively to strong economic growth.

What does dollar weakness mean for US stocks?

There is a further headwind to US stocks in the form of the weakening US dollar.

American investors will be very happy with the returns their domestic stocks have generated of late, but investors from overseas might have cause for concern.

In the week to 23 January, the returns that different investors would have realised varied by their base currency.

“Dollar-based investors saw gains, but sterling and euro investors registered losses thanks to a near-2% drop in the dollar’s global value,” said John Wyn-Evans, head of market analysis at Rathbones. “That raises the risk of money illusion for US investors, whose rising portfolios may mask declining international purchasing power.”

Wyn-Evans observed that the dollar is threatening to fall below the bottom of its long-term trading range, at the same time as silver and gold prices are surging to new all-time highs.

How to invest for the end of US exceptionalism

If you believe the era of US exceptionalism is over, there are some steps you can take in order to protect your portfolio.

One means of gradually diversifying away from the US would be to feed future investments into a global ex-US tracker instead of a global vanilla fund. By doing so, “an investor would slowly be able to dilute their exposure to America”, said Dan Coatsworth, head of markets at AJ Bell.

Coatsworth highlighted Xtrackers MSCI World Ex-USA ETF (LON:XMWX) as one of the most popular choices of global ex-US funds.

You could also invest in some global markets outside the US that are more overlooked. Coatsworth highlighted “greater appetite for UK, European and Japanese investments” through 2025, with all three regions’ major indices having outperformed the S&P 500 so far in 2026.

It has taken barely a month for consensus opinion to shift from thinking that the US market is invincible to declaring that US exceptionalism is over, so its market will underperform indefinitely. And all because president Donald Trump is causing chaos and confusion with tariff proposals, which not only change from day to day, but have also been the preferred economic tool of the US since its creation, as Marc Levinson of Bloomberg reminds us.

The S&P 500 did fall 20% from its February peak to its early April low, but is now down just 6% in 2025. Remember that at the start of the year, the US was trading on 22.4 times expected earnings for 2025, so it was ripe for a setback regardless of Trump’s antics. It fell to a multiple of 19.2 on 8 April, but is now back up to 20. Meanwhile, UK and European markets are up for the year to date. So what’s all the panic about?

With energy prices low, interest rates falling and no evidence of financial distress, a recession in the US looks unlikely. Economic growth is probably slowing, but to a pace still far better than is likely to be achieved in the UK and Europe.

Analysts are cutting profit forecasts, but they often do, only to see actual quarterly results beat expectations. First-quarter results for US firms are beating expectations by more than 7%, well above the usual amount. As a result, although the forward earnings multiple of 20 is not exactly cheap, it is reasonable given earnings growth and a ten-year government bond yield back below 4.2%.

The Economist is a contrary indicator

“Is this the strongest buy signal ever?” asks Ed Yardeni of Yardeni Research. He contrasts the popular extreme pessimism with a reasonable economic and corporate outlook. He notes four consecutive bearish cover stories of The Economist – “Only 1,361 days to go; How a dollar crisis would unfold; The age of chaos and Ruination day. The Economist’s cover, as well as that of other business magazines, has a long history of being a reliable contrary indicator.

He also notes that sentiment indicators for the stock market have hit rock-bottom levels. “But if our suspicions are right, and some hints of dawn reappear sooner rather than later, then writing off 2025 as an unmitigated disaster for stocks might be a costly mistake.” Investors may need to show a little patience and there may be further setbacks ahead, but it is likely that the lows of the year have been seen.

What should investors buy? At times of market stress, it usually makes sense to buy the obvious funds – rather than specialist ones, those on large discounts to net asset value (NAV), or those demonstrably cheap. Such funds do not lead the market up. Well-diversified global trusts such as Alliance Witan, F&C and JPMorgan Global Growth & Income all have solid long-term records and move with the market.

Contrarian investors will want to bet against the prevailing conviction against the US and technology and growth. That suggests JPMorgan American, Scottish Mortgage and the two technology specialists, the Polar Capital Technology Trust and the Allianz Technology Trust. US outperformance on the scale seen in the last 20 years is ultimately unsustainable, but it may not be over yet and even if it is, the US should still perform well in absolute terms.

Those nervous about relatively high US valuations could look at the two US small-cap trusts, Brown Advisory and JPMorgan US Smaller Companies. The S&P 400 mid-cap index trades on a multiple of 14.3 times expected earnings and the S&P 600 small-cap index on 13.8 times. US market leadership will change; it may no longer be led by all of the “Magnificent Seven”. For example, Marc Weiss of technology experts Open Field Capital believes that “AI value is shifting rapidly away from silicon chips and models (ie, Nvidia) towards AI applications”. This opens up a new field of opportunities.

Still, “the Magnificent Seven are still magnificent”, argues Yardeni, who points out that “the forward price/ earnings multiple of the Magnificent Seven plunged from 30 at the start of the year to 21.7 on 8 April”. Following good quarterly results, the Seven are now leading the rally. A rising yen is more likely to attract capital into Japan, where a very positive outlook for investment has been undermined by a weak currency.

The value funds, Nippon Active Value and AVI Japan, have been by far the best performers for the last five years, but the growth-orientated Japan trusts managed by Baillie Gifford, Fidelity and JPMorgan may start to catch up. The CC Japan Income & Growth and the Schroder Japan Trust are a good compromise.

It’s hard to see anything in the market that is overpriced, with one exception: gold, as expensive in real terms as it was at the 1980 peak. Goldman Sachs forecasts that the price will reach $4,000 an ounce, but those with long memories will recall that in 2008, with the price of oil at $150 a barrel, Goldman Sachs was forecasting $200 a barrel.

The price soon collapsed and has never seen $150 a barrel again, securing Goldman Sachs’ reputation for being a contrary indicator. As Keynes said, “my central principle of investment is to go contrary to general opinion on the ground that, if everyone agreed about its merits, the investment is inevitably too dear and unattractive”. That rationale supports buying shares and selling gold.

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“Markets are discovering the real Trump trade is ‘Sell America’,” say Saleha Mohsin and Carter Johnson on Bloomberg. Stocks soared late last year on bets that the incoming president would initiate an American golden age. It hasn’t worked out like that. The dollar has dropped 9% against other major currencies in 2025.

The US relies on international capital to finance its budget and trade deficits. As Torsten Slok of Apollo Management notes, foreigners own $19 trillion of US equities and $7 trillion of government bonds, equivalent to 20%-30% of the market. Those funds are now fleeing for more predictable climates.

Will the dollar continue to reign?

Trump served up fresh controversy last week, saying that the “termination” of Jerome Powell as Federal Reserve chair “cannot come fast enough!”. Trump is angry with Powell for not cutting interest rates, says Jeremy Warner in The Telegraph. Central banks “generally deserve whatever brickbats they get”, but it is considered “beyond the pale” for a sitting government to publicly criticise them. Central-bank independence is a “cornerstone” of modern economic policy for good reason: when politicians get their hands on rates, “they almost always abuse” the power.

Trump probably doesn’t have the legal authority to remove Powell. On Tuesday, the president retreated from his comments, saying he would just “like to see” Powell “be a little more active”. The real purpose of the rhetoric? Preparing the ground to blame the Fed should Trump’s trade war cause an economic slump later this year, says Nick Timiraos in The Wall Street Journal.

On Trump’s telling, “Powell worked to help Biden during his term” with rate cuts, but is “unwilling to provide the same support” now. This overlooks that, first, it was Trump who originally appointed Powell in 2018; second, it was Powell who provided unprecedented economic support in 2020 when Trump was in office; and third it was Powell’s Fed that raised rates steeply in 2022 and 2023 during Biden’s term. This politicisation of the Fed is doing no favours to the dollar’s credibility.

“American prestige has taken a hit”, but King Dollar’s reign looks secure, says Daniel Moss on Bloomberg. The greenback’s role in world trade has survived previous American disasters, from the 1971 “Nixon shock” to the 2008 subprime mortgage crisis. Rather than a grand reordering of the global financial system, we may just be witnessing a “healthy” currency market correction after a period where the dollar was chronically overvalued.

The dollar has been the “lynchpin” of world trade for 80 years, with 88% of all foreign-exchange transactions involving greenbacks, says The Economist. A key argument for the currency is that there are no clear alternatives. China’s yuan cannot take over so long as Beijing keeps strict capital controls in place. As for the euro, while investors regard Berlin as a safer credit risk than Washington, the market in bunds is much shallower – just a 12th the size of that for US Treasuries. King Dollar will continue to reign, but its relative role will diminish as central banks pile into alternatives, including gold.

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It is no secret that US president Donald Trump is not a fan of Jerome “Jay” Powell, the chairman of the US Federal Reserve (Fed). Last Thursday, 17 April, he took his criticism up a notch when he threatened to fire Powell, saying his “termination” could not come “fast enough”.

The move constituted a significant overstep. The Fed is independent, meaning it sets interest rates without interference from the White House or Congress. Politicians generally respect this.

The main thing irking Trump is Powell’s refusal to lower interest rates quickly. On the campaign trail, Trump promised to relieve pressure on households by reducing borrowing costs – a decision that lies outside of the president’s power.

Markets responded negatively to Trump’s comments when they opened after the Easter weekend. The S&P 500 closed 2.4% lower on Monday, while the Nasdaq 100 fell 2.5%. The dollar also weakened, while gold and long-term Treasury yields rose.

Trump quickly backtracked on Tuesday, 22 April, telling reporters that he has “no intention” of firing Powell. “I would like to see him be a little more active in terms of his idea to lower interest rates,” he added. Markets jumped on the news.

As well as Trump’s comments on Powell, the rebound was partly driven by the suggestion that the US might come to an agreement with China, after Treasury secretary Scott Bessent said the trade war was unsustainable.

“These comments have given markets a sense of optimism that recent chaos might have peaked and we’re heading towards calmer waters. It almost suggests that someone has taken Trump to one side and told him it’s time to be more responsible with his words and actions,” said Russ Mould, investment director at AJ Bell.

While a temporary sense of calm has been restored, the episode raises questions about the Fed’s independence and how much power the president has over the US central bank. Can Trump fire Powell – and what would it mean for markets?

Can Trump fire the chair of the Fed?

The chairman of the US Federal Reserve is nominated by the US president and confirmed by the Senate, however it is an independent role. The chair serves a four-year term and can be reappointed several times.

Powell was originally nominated by Trump in 2017 during his first term as president, before relations between the two soured. He was nominated for a second term by Biden in 2022.

Speaking in Chicago last week, Powell said the Fed’s independence is “very widely understood and supported in Washington and in Congress where it really matters”. He added that the central bank was “never going to be influenced” by political pressure. “We will only make our decisions based on our best thinking… our best analysis of the data.”

Despite this, lawyers recently told the Supreme Court that the Fed’s independence could be left vulnerable, should Trump’s recent firing of two Democrats be allowed to stand. Cathy Harris and Gwynne Wilcox were dismissed from two federal labour boards before their terms expired.

The implication is that this could set a dangerous precedent for other independent agencies.

What’s behind Trump’s criticism of Powell?

Trump’s argument with Powell goes back to the fact that he wants interest rates to fall more quickly.

The Fed has cut interest rates three times from their peak, bringing the federal funds rate to a range of 4.25-4.5%. The first cut was a large one at 50 basis points (September), with two 25 basis-point cuts after that (August and December).

At the latest rate-setting meeting in March, Powell suggested two more 25 basis-point cuts could be in store this year, however he also pointed to “heightened uncertainty” in the US economy, driven by the Trump administration.

“The new administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation. It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy,” he said.

“While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their effects on the economic outlook is high.”

Writing on his social media platform Truth Social on Thursday, Trump said: “The [European Central Bank] is expected to cut interest rates for the 7th time, and yet, ‘Too Late’ Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete ‘mess!’

“Oil prices are down, groceries (even eggs!) are down, and the USA is getting RICH ON TARIFFS. Too Late should have lowered Interest Rates, like the ECB, long ago, but he should certainly lower them now.”

Most economists disagree with Trump’s argument that tariffs will make Americans “rich”. Tariffs are essentially an import tax, paid by businesses and passed on to consumers in the form of higher prices.

If US inflation rises as a result of Trump’s trade policy, it could delay further interest rate cuts rather than opening the door to them.

The alternative scenario is that tariffs prove so damaging to economic growth that the Fed is forced to cut rates to support the economy – but for the wrong reasons (recessionary risks) rather than the right ones (slowing inflation).

In its latest economic outlook, the International Monetary Fund (IMF) has projected a “significant slowdown” in the US economy. It now expects growth to come in at 1.8% in 2025, down from its previous forecast of 2.7%.

While the institution is not currently forecasting a recession, it says the risk of one occurring has increased from odds of 25% to around 40%.

Why does central bank independence matter?

The Fed has a dual mandate – to promote maximum employment and price stability. To successfully achieve this, it needs to take a view that is both long-term and impartial.

Squashing inflation out of the economy, for example, has involved painful decisions. Many households and businesses are still struggling to pay off mortgages and debts as a result of higher interest rates. Someone courting public opinion may have struggled to make the necessary moves.

“The critical thing is to make sure that inflation expectations remain anchored; that everyone remains convinced that central banks will do what is necessary to bring inflation back to central bank targets in an orderly manner,” said Pierre-Olivier Gourinchas, economic counsellor at the IMF.

“Central banks have the instruments to do this. They have their interest rate instruments. They have various instruments of monetary policy. But one critical aspect of what they do comes from their credibility. So central banks need to remain credible. And part of that credibility is built upon central bank independence.”

What do Trump’s threats mean for investors?

Any threats to central bank independence are bad news for investors and the wider US economy.

Firstly, interference from the president would damage central bank credibility, adding to the risk of persistently higher inflation and therefore interest rates. In other words, Trump could end up undermining his own objectives.

Furthermore, lower short-term interest rates would probably come at the expense of a jump in longer-term Treasury yields, according to Samuel Tombs, chief US economist at Pantheon Macroeconomics. He points out that these matter more for the real economy.

Tombs suggests investors would “bake in a greater risk premium”, anticipating “more inflation and hence the need for tighter monetary policy in the future”.

Meanwhile, “higher corporate bond yields and lower stock prices would make financing more, rather than less, expensive for many private companies, offset only in part by the boost to exports from a weaker dollar”.

Monday’s “ugly moves” in financial markets are just “a taste of what would follow if Trump aggressively attacked the Fed’s independence”, according to Tombs. Investors will be breathing a sigh of relief now that Trump has backed down – and hoping he stays there.

Online payments provider and buy-now-pay-later (BNPL) lender Klarna has become “the latest... casualty” in the initial public offering (IPO) market following the announcement on tariffs, say Ben Dummett and Joe Wallace in The Wall Street Journal. It has decided to postpone its flotation. It was due to launch a marketing campaign for the listing on the New York Stock Exchange, where it has been targeting a valuation of $15 billion – over double the $6.7 billion it was worth in 2022. Rival Affirm’s market valuation dropped 15% on Friday 4 April. It has almost halved to $12 billion this year.

The dismal performance of Affirm and its other rivals may have played a big role in Klarna having “second thoughts” about entering the stock market, says Pymnts. However, there are also some “larger concerns”. The trade war unleashed by Donald Trump could cause consumers to “throttle” overall spending. This would be particularly bad news for Klarna, which makes its money from short-term loans to consumers. What’s more, during bear markets, investors tend to focus on companies with a “prolonged history of operating profits”, while Klarna admitted in recent pre-flotation filings that operating losses had instead “been widening at the company”.

Is Klarna a prudent lender?

The evidence suggests that Klarna’s ability to make loans wisely isn’t as great as it might seem, adds Stephen Gandel for Breakingviews. While its headline loan-loss rate is only 0.47%, far lower than the 5.2% banks have been forced to write off on credit-card loans, it has set aside $495 million to cover potential unpaid debt from consumers. Using an alternative measure, Klarna’s loan losses are actually “slightly worse” than the industry average at 5.5% of outstanding balances. While Klarna’s customers do pay off their instalment loans more quickly, it is not clear that Klarna’s business model is really different from that of banks, so investors could be forgiven for giving it a “more bank-like valuation” rather than treating it like “a high-growth company”.

Sweden’s Klarna is the “new kid on the block” when it comes to BNPL in the US, says Theodora Lee Joseph in Finimize. This can be positive: the US market is much less developed than the European one, with a mere 9.8% of consumers using BNPL, compared with 20% in the UK and 33% in Germany. But competition in America is more intense, with Affirm and PayPal “vying for market share” too. Many US firms offer BNPL “as a free add-on”, which is another challenge. Klarna “might have to sacrifice margin to stay competitive”.

Still, Klarna isn’t the only company that has decided to delay a US listing for now, says the Financial Times. Ticketing company StubHub, virtual physical-therapy company Hinge Health and Israel-based trading platform eToro have, too. This marks a “stark turnaround” from expectations at the start of the year that the IPO market “would boom under an ostensibly pro-business Republican administration”.

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US president Donald Trump has unleashed chaos in markets by announcing sweeping “Liberation Day” tariffs. The S&P 500 has shed more than 10% since tariffs were announced, and is expected to plunge further when markets open today (Monday, 7 April).

Asian markets experienced a bloodbath during trading hours on Monday, with the Hang Seng plunging more than 13%, the Shanghai Composite more than 7%, and the Taiex almost 10%. European markets followed suit, selling off dramatically at market open.

Investors have been spooked by aggressive tariffs imposed in the US, which threaten to push inflation up and pour ice water on economic growth. Trump has imposed a 10% “baseline” tariff on most foreign imports into the US, with more aggressive measures for countries with a large trade deficit with the US.

The most punitive measures have been targeted at those Trump deems the “worst offenders”. Sixty countries will be hit with higher taxes of up to 50%. China will be slapped with a 34% tariff rate, Japan with 24%, and the European Union with 20%. The UK will be hit by the 10% baseline tariff.

The measures threaten to make a substantial dent in global trade.

“It’s rare to see double-digit falls in a single day for a major stock index, yet today is one of those days that will go down in history,” said Russ Mould, investment director at platform AJ Bell. “This market sell-off feels brutal because it is relentless. Often, we see one or two bad days then a rebound. We’re now on day three and the sell-off is intensifying, not dying down.”

“Fundamentally, investors are worried about a big hit to corporate earnings and a massive slowdown in economic growth. The potential end of globalisation throws up more questions than answers and that uncertainty is causing havoc on the markets,” he added.

What are tariffs and why have they caused markets to crash?

Tariffs are import taxes that make it more expensive to buy foreign goods. They are often imposed as part of a protectionist policy to encourage consumers to buy goods that are manufactured on home soil. Tariffs are paid by the company that imports the goods, but importers typically pass the cost on to consumers by building it into their prices.

Donald Trump claims tariffs will be good for the US economy. He has persistently criticised the trade deficits in place between the US and trading partners. As well as encouraging consumers to buy domestic products, tariffs could raise up to $835 billion in additional customs duties, according to consultancy Capital Economics. Its economists point out that this figure will probably end up closer to $700 billion once the resultant decline in imports is factored in.

However the broader picture is more complex.

Imposing tariffs pushes up costs for US consumers by making imported goods more expensive (as importers pay the tax). The cost of US-manufactured goods can also go up, if they include parts that have been imported from elsewhere. Tariffs also give consumers less choice. In the past, shoppers might have been able to make a saving by buying cheaper imported goods, but tariffs erode this saving.

The contagion effect of policies like this is significant, meaning it is not just US consumers that will be impacted. Global economies operate in a connected web of interdependence. As more and more countries respond with retaliatory tariffs, prices could start to rise on a global scale. Growth could also stagnate, as it becomes more expensive for companies to buy goods and do business.

“Higher friction costs on trade are ultimately bad for everyone, even countries like the UK that got off relatively lightly, as this upending of the global trade system will slow growth, possibly trigger recessions and ultimately raise costs for consumers, not least in the US itself,” said Jason Hollands, managing director at wealth management firm Evelyn Partners.

“President Trump may have some legitimate grievances about the global economic order that has existed for nearly half a century and resulted in unbalanced trade for the US, but at least in the near term, this will prove an act of self-harm as the costs of imports rise both directly and for US firms that use imported components,” he added.

Hollands points out that major firms like Apple and Tesla manufacture parts in China; sportswear company Nike sources products from Vietnam (hit with a 46% tariff); and chip giant Nvidia produces some of its chips in Taiwan (32% tariff).

“The agenda here is to pile the pain on businesses, whether foreign or American, to move manufacturing to the US. That won’t happen overnight,” Hollands added.

What do tariffs mean for your money?

Much will depend on whether Trump lifts some of the measures or offers exemptions, as he has done in the past. Markets are becoming less hopeful, though. The president doubled down over the weekend when asked to comment on tumbling stock markets, saying “sometimes you have to take medicine to fix something”.

The measures announced will impact almost every aspect of your finances, even if you are not actively trading stocks and shares. The effects of Trump’s announcements have already reverberated through the mortgage market, the savings market, and your pension.

Inflation and interest rates

If tariffs push inflation higher, you might expect interest rates to stay higher for longer, but markets have actually moved in the opposite direction in recent days to price in a faster pace of Bank of England cuts. Central banks have to balance inflation and growth concerns. Seemingly, markets are more concerned about recessionary risks.

UK economic growth

The UK is in a better position than many other economies, having been slapped with the baseline 10% levy. However, many businesses will still feel the impact, particularly when combined with domestic headwinds, like the hike to employers' National Insurance contributions. The Bank of England has already slashed its 2025 growth forecast in half from 1.5% to 0.75%.

The sad reality is that wages will probably grow more slowly and redundancies could rise.

Mortgage rates

If interest rates are cut more quickly to counteract slowing growth, mortgage rates could come down. We are seeing early signs of this already. “Swap rates have dropped, which should feed through into lower fixed rate mortgages in the coming days,” said Sarah Coles, head of personal finance at investment platform Hargreaves Lansdown. “These have already edged down since the start of 2025, and are likely to continue to do so.”

Savings rates

Savings rates will probably fall further in anticipation of faster base rate cuts. They look fairly robust for now, with providers having upped cash ISA rates to entice customers in before the end of the tax year, but expect drops over the coming days and weeks. Now could be a good time to fix your savings, if you have a pot of cash you are willing to lock away for a set period.

Pensions

Your pension has probably taken a significant hit in recent days thanks to the global stock market sell-off – but remember that investing is a long game. Market dips are typically followed by recoveries, provided you are suitably diversified and stay in the market long enough.

“At the moment, the only certainty seems to be uncertainty – but that isn’t always bad for returns,” said Miranda Seath, director of market insights at the Investment Association. “When you see volatile markets, there can be some interesting investment opportunities. We know investors will be looking at how to navigate today’s uncertain markets, but markets run in cycles, so it’s important to remember that investing is for the long-term.”

Most people will be saving into a workplace pension where the choice of investments is often managed on their behalf, but those who select their own investments may want to review their strategy to ensure they are suitably diversified.

“Many investors will now be thinking about their levels of exposure to the US markets,” Seath added. “Over the next few months, we can expect to see investors looking at other opportunities, potentially in Europe, or even in the UK.”

So-called “safe-haven” assets like gold and government bonds have also seen inflows as investors look to increase portfolio diversification.

With the spring holiday season approaching, investors may be wondering: is the stock market open on Easter? The answer to this question is: no. The UK stock market will be closed on Monday, 6 April, for Easter Monday.

The stock market is also closed on Friday, 3 April, to observe Good Friday.

Typically, UK stock market opening times are 8am to 4.30pm Monday to Friday with a small break between 12pm and 12.02pm. This can vary depending on public holidays and major events, such as Christmas Eve, when markets close earlier than usual.

Investors gearing up for the end of the tax year will need to make sure they’re ready for the big money changes in April.

But with markets getting unpredictable due to the ongoing war in Iran, investors may want to prepare their portfolio for high inflation. Check out our weekly share tips guide to get an idea of where to invest.

Below, we look at UK and US stock market opening times during Easter, and how it will impact trading on those days.

Is the stock market open on Easter?

No. The UK stock market is closed on Easter, which falls on Monday, 6 April. This is part of the eight standard holidays observed by the stock exchange in the year.

The London Stock Exchange only observes English bank holidays – not Scottish, Welsh or Northern Irish holidays. For instance, Easter Monday is a bank holiday in England, Wales and Northern Ireland but not in Scotland. It’s a non-trading day for the stock market.

The UK stock market is also shut on Friday, 3 April, for Good Friday, which means the trading will cease for four consecutive days.

We look at the key money dates for 2026 for those who want to stay on top of their finances in the new tax year.

When is the UK stock market closed in 2026?

Below is a list of UK stock market holidays to help you plan your trading activities accordingly.

Source: London Stock Exchange

When is the US stock market closed in 2026?

If you invest in US stocks, also look at the New York Stock Exchange (NYSE) and Nasdaq’s open times and upcoming holidays this year.

Both stock exchanges’ standard opening hours are Monday to Friday 9:30am to 4pm Eastern Standard Time (EST) time, which is 2:30pm to 9pm BST in the UK.

Markets have been spooked by further tariff announcements from US president Donald Trump, this time focusing on the car industry.

Trump announced a 25% levy on cars and automobile parts coming into the US, issuing a presidential proclamation on Wednesday, 26 March. The measures will kick in from Thursday, 3 April.

Mexico is the biggest importer of autos into the US, followed by South Korea, Japan, Canada and Germany. US car manufacturers will also be hit by the tariffs, given the cross-border nature of their production lines.

Trump justified the tariffs by referencing a 2019 investigation from the commerce department, which found that “excessive” automobile imports threatened US national security.

The Trump administration’s argument is that the defence sector benefits from technological innovations in the autos sector. However, critics will point out that this has become a strategic move from the Trump administration.

By citing national security concerns, Trump is able to bypass Congress and impose tariffs under Section 232 of the Trade Expansion Act of 1962.

Trump has previously cited fentanyl trafficking and illegal immigration as reasons for imposing tariffs, including on countries like Canada.

In reality, there is very little fentanyl crossing the border from Canada into the United States. Government figures cited by CNN suggest just 0.2% of all fentanyl seized last year was found at the Canadian border.

Auto stocks have fallen on the news. Japanese carmaker Toyota closed 2.8% lower on Thursday, while South Korea’s Hyundai shed 4.3%.

European auto stocks also felt the effects when markets opened this morning. “Mercedes Benz fell the most among German automotive stocks, with shares plunging by more than 4% in early trading before rebounding to trade down 3% around midday,” Morningstar writes.

“Volkswagen traded 1.3% lower with BMW down 1.8% and Porsche down 3.6%. Stellantis declined 3.8% while France’s Renault, which has minimal exposure to the US market, bucked the trend and traded slightly higher.”

American auto manufacturers have also opened lower today.

Will auto tariffs hurt US businesses and consumers?

Trump has said tariffs will support US growth and bring jobs and investment into the country, but the reality is quite different. US car manufacturers are actually very worried.

Most US car companies have plants in Mexico and Canada, and parts can cross the northern and southern borders several times during the assembly process.

Trump threatened Mexico and Canada with universal tariffs earlier this month, but wide-ranging exemptions were later granted under the US-Mexico-Canada trade agreement (USMCA), offering car companies a reprieve. This doesn’t seem to apply this time.

All Trump has said so far is that importers can submit documentation to the commerce secretary outlining the amount of US content in each model imported into the US.

Parts that are “wholly obtained, produced entirely, or substantially transformed” in the United States may be eligible for a tariff exemption, but the remainder of the product (any “non-US content”) will be slapped with the 25% tariff.

This is bad news for the US auto industry. Analysis from consultancy Anderson Economic Group, conducted earlier this year, found that tariffs on Mexico and China could push new car prices up by between $4,000 and $10,000.

Take General Motors. Four of its plants are in Mexico and another four are in Canada. Looking at just a couple of the company’s business lines helps bring the scale of the tariff disruption to life.

For example, General Motors is heavily reliant on its Ramos Arizpe plant in Mexico for its transition to electric vehicles, according to Car and Driver’s Caleb Miller.

Meanwhile, the production of Chevrolet’s bestselling model (Chevrolet is owned by General Motors) is split between several plants, including ones in Mexico (Silao) and Canada (Oshawa).

Stellantis and Ford also have part of their production line in Mexico, Canada or both. These companies won’t just be hit by Trump’s tariffs, but also by any retaliatory tariffs that targeted countries decide to impose.

Of course, the long-term ambition for Trump’s administration is that companies move their manufacturing onto American soil – but the reality is that this process is costly and slow.

“With enormous up-front costs… a company could only consider this if there was clear certainty that the policy would be permanent, rather than lasting only the term of the president,” said Lindsay James, investment strategist at wealth management firm Quilter.

“Whilst tax incentives have been suggested, nothing has yet passed Congress. Whether companies have that conviction will be down to their individual appraisals, but in the short term, there is little protection from a move that will have enormous collateral damage.”

Summary

• The global trade spat is heating up. In the latest move today (13 March), US president Donald Trump threatened the European Union (EU) with 200% tariffs on alcohol imports.
• It comes after the EU announced a series of countermeasures against the US on 12 March, impacting up to €26 billion worth of US goods.
• The EU's countermeasures were a response to the 25% steel and aluminium tariffs imposed by the US earlier this week. These metal tariffs were announced in February but kicked in on 12 March.
• America's steel and aluminium tariffs apply to all countries, not just the EU. Canada has also responded with measures impacting C$29.8 billion worth of US goods.
• Markets could be in for another volatile few days after an already-tense period. Last week, tariffs of 25% briefly kicked in for all Canadian and Mexican goods (4 March) before broad exemptions were granted two days later (6 March).
• Trump also doubled the levy on Chinese goods from 10% to 20% last week (4 March).
• Global stock markets have taken a downturn in recent weeks in response to Trump’s erratic trade policy, with US markets bearing the brunt.

The team at MoneyWeek is reporting live on the latest tariff announcements and what they mean for your money. Refer to our previous live blog for analysis on the tariff announcements made in February.

Good Wednesday afternoon. Welcome to MoneyWeek’s new live blog on US president Donald Trump’s tariffs.

The trade war is heating up but the messages coming out of the White House remain unpredictable. Tariffs of 25% kicked in on Canadian and Mexican imports yesterday, and the levy on Chinese imports was doubled from 10% to 20%. However, later in the day, US commerce secretary Howard Lutnick said Trump could announce a deal on Wednesday (i.e. today) to meet Canada and Mexico somewhere “in the middle”.

This has calmed markets somewhat and raised hopes that Trump will backtrack – at least a little. But investors should brace themselves as the rollercoaster ride is likely to resume before long. The only thing that is predictable about the current inhabitant of the White House is his unpredictability.

Stick with us as we run through the latest news and share analysis on what it means for markets and the economy.

Markets rally on hope of a rollback in policy

Commenting on the latest developments in markets today, Russ Mould, investment director at platform AJ Bell, said: “European and Asian markets were on the front foot on Wednesday amid hopes that Donald Trump might partially wind back tariffs if deals could be struck with Canada and Mexico.

“Investors are looking for any signs that Trump is open to deals rather than doling out tariffs and refusing to listen. Markets would take even the slightest rollback from Trump as a positive sign, helping to settle nerves following concerns about a full-blown trade war.” Mould also noted a shift from “risk-off” to “risk-on” investments in the FTSE 100 this morning as investor optimism was buoyed by the prospect of an easing in policy.

The S&P 500 is down more than 3% over the past five days, at the time of writing.

What do tariffs mean for the global economy?

The scale of the economic impact will depend on how far Trump actually goes. For now, the line between threats and genuine policy remains fuzzy. What we do know is that there are rarely any winners when it comes to trade wars.

Tariffs typically push up costs for consumers as it becomes more expensive for them to buy imported goods. Domestically-manufactured goods can also become more expensive too, if they include imported components.

Washing machines are often cited as an example from Trump’s previous term. US tariffs imposed on imported washing machines between 2018 and 2023 pushed the cost of laundry equipment up by 34%, according to official statistics cited by the BBC. The price of dryers, an associated good which was not subject to tariffs, also went up.

Trump’s tariff threats this time around have been more wide-ranging, and so could prove even more disruptive.

A general rule that has been quoted by economists at Goldman Sachs, among others, is that each time the average tariff rate goes up by one percentage point, the rate of core US inflation goes up by around 0.1 percentage points.

As well as pushing inflation up, economists have warned that tariffs are likely to slow economic growth. Supply chain disruption and higher costs for businesses and consumers are rarely good news for the economy.

Tariffs: a recap of everything the US has announced so far

The latest tariffs on Canada, Mexico and China this week follow on from previous announcements in February. Here is a recap of all of the tariffs that have been announced so far:

• 25% tariffs on Canadian goods (with a carveout for energy products, which will be taxed at 10%) – effective 4 March
• 25% tariffs on Mexican goods – effective 4 March
• 20% tariffs on Chinese goods – first 10% tariff effective 4 February, before being doubled to 20% on 4 March
• 25% tariffs on steel and aluminium imports – effective 12 March

Trump has also hinted at potential tariffs on cars, semiconductor chips, pharmaceuticals and agricultural products. He has indicated that these could be in the region of 25%, with an announcement coming on 2 April.

The president has also suggested that “reciprocal” tariffs could follow on 2 April for countries who impose taxes against the US. This could target a broad range of countries including those who impose VAT, raising fears that the UK could be hit.

Retaliatory tariffs

Canada: Canadian prime minister Justin Trudeau called the latest tariffs “a dumb thing to do”. He announced retaliatory tariffs of 25% against $155 billion worth of American goods. Tariffs on the first $30 billion came into effect yesterday, with the remaining $125 billion due to follow 21 days later.

China: Foreign ministry spokesman Lin Jian said China would “fight [the US] to the bitter end” if it persists in waging a trade war. China announced retaliatory measures including tariffs of up to 15% on American food and agricultural products.

Mexico: Mexican president Claudia Sheinbaum has also promised retaliatory tariffs, but will not announce these until a public speech on Sunday.

A "toxic" trade environment

Economists at European bank ING have described the current trade uncertainty as “toxic for companies and their investment decisions”. However, they believe there is still the opportunity for trade deals to be formed.

They write: “Positive comments towards Australia, China's measured tariff response, diplomatic efforts from India and Japan, and potential consultations between the EU and the US could still result in a watered-down tariff approach. That tariffs will be avoided altogether is not a realistic expectation in the current global trade environment, however.”

The death of the “Trump trade”?

The S&P 500 enjoyed a strong bull run last year, with a further boost coming from the election result in November. Investors were optimistic that tax cuts and deregulation would spell good news for businesses and sought to take advantage of what they were calling the “Trump trade”.

Sentiment has been far more negative in 2025, though, and the S&P 500 is now back where it was at the point of the election.

“Domestically, investors have begun to price in the effects of tariffs which could have unintended consequences such as weakening the economy as well as boosting inflation at a time the situation was coming under control,” said Richard Hunter, head of markets at platform Interactive Investor.

US markets were also rattled earlier this year by the emergence of Chinese chatbot DeepSeek, a rival to ChatGPT. The application delivers comparable performance to ChatGPT, but with lower development costs and less sophisticated semiconductor chips.

Until recently, the US was seen as the undisputed frontrunner in the AI race, but the emergence of DeepSeek suggests China might not be as far behind as previously imagined.

Tech stocks, which have driven US indices higher in recent years, have suffered as a result. With the exception of Meta, the share price performance of the Magnificent Seven has been disappointing so far this year.

Early warning signs in the US economy?

Businesses are already starting to feel the first effects of the tariff-related disruption, based on recent data from the Purchasing Managers’ Index (PMI). The PMI is a survey which gives regular insights into business conditions across different areas of the global economy.

The latest PMI data showed that US exports fell at an increased rate in February – the second biggest drop in 20 months. “North American factories increasingly cited tariffs and trade policy issues as a cause of reduced exports,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

US factories also reported the biggest rise in input costs since November 2022. “These costs were often passed on to customers by US factories, which reported the sharpest rise in selling prices for two years,” Williamson added.

Despite this, US production growth currently looks strong. February's PMI saw production growth accelerate at the fastest rate since May 2022.

How concerned are you about the impact of tariffs?

That concludes our coverage for this evening. We will be back with further updates and analysis tomorrow. In the meantime, MoneyWeek would like to hear your thoughts on the latest tariff developments. What do you think it will mean for the pound in your pocket?

Tariff exemption for carmakers

Welcome back to our tariffs live blog. The main headline since we signed off yesterday is that Trump is granting carmakers a one-month exemption on the new 25% import taxes imposed on Mexico and Canada.

White House press secretary Karoline Leavitt delivered a statement from the president yesterday afternoon. This said: “We spoke with the big three auto-dealers. We are going to give a one-month exemption on any autos coming through USMCA [United States-Mexico-Canada Agreement].

“Reciprocal tariffs will still come into effect on April 2, but at the request of the companies associated with USMCA, the president is giving them an exemption for one month so they are not at an economic disadvantage.”

Leavitt said that Stellantis, Ford and General Motors requested a call with the president asking for the exemption, and that he was “happy to do it”.

More analysis to follow.

What’s behind the carmaker exemption?

Tariffs on Mexico and Canada would come as a significant blow to US carmakers, and the latest exemption looks like an attempt to manage this. The sector has previously been highlighted as a case study of how economically damaging Trump’s tariffs could be to his own economy.

Take General Motors. Four of its plants are in Mexico and another four are in Canada. For comparison, the company has 11 plants in the US.

Car and Driver’s Caleb Miller writes that General Motors is heavily reliant on its Ramos Arizpe plant in Mexico for its transition to electric vehicles. He also points out that the company’s San Luis Potosí plant is where the Chevrolet Equinox is produced (Chevrolet is a part of General Motors). The Equinox was Chevrolet’s second-bestselling vehicle last year. Meanwhile, the production of Chevrolet’s bestselling model (the Silverado) is split between several plants, including ones in Mexico (Silao) and Canada (Oshawa).

General Motors is just one example. The big three (General Motors, Stellantis and Ford) all have part of their production line in Mexico, Canada, or both.

US carmakers rally on tariff exemption

General Motors, Stellantis and Ford all tumbled at the start of the week on the tariff news, but began to rally as hints of a rollback in policy emerged on Tuesday (4 March). They continued their recovery on Wednesday (5 March) when the White House announced a one-month exemption on tariffs for carmakers.

Investors will be breathing a sigh of relief for now, but uncertainty still lingers. The president is famously unpredictable. Carmakers could find themselves facing the exact same crisis this time next month when the exemption period comes to an end.

The below chart is live and highlights the latest market moves, so will continue to refresh after this post was written. Click the tickers to see the performance of each stock.

Trump suspends tariffs on Mexico

Over the past hour, reports have emerged that Trump has suspended tariffs on Mexico until 2 April after talking with Mexican president Claudia Sheinbaum. More details to follow.

Trump describes relationship with Sheinbaum as "very good"

Writing on social media platform Truth Social, Trump said: "After speaking with President Claudia Sheinbaum of Mexico, I have agreed that Mexico will not be required to pay Tariffs on anything that falls under the USMCA Agreement. This Agreement is until April 2nd".

USMCA, which stands for the United States-Mexico-Canada Agreement, is an existing free trade agreement.

Trump described his relationship with Sheinbaum as "very good" and said he was "working hard" with Mexico to address border concerns.

Trump has previously accused Mexico of failing to stop illegal immigrants and fentanyl supplies from crossing the border into the US.

He has also used fentanyl as an excuse to impose tariffs on his norther neighbour, even though Ottawa claims less than 1% of fentanyl intercepted at the US border comes from Canada.

No mention of a pause for Canada

So far, there has been no mention of a similar exemption for Canada. Trump has continued to criticise Canadian prime minister Justin Trudeau on social media over the past hour.

Trudeau has taken a strong stance in his response to Trump in recent days, announcing retaliatory tariffs of 25% against $155 billion worth of American goods. The Canadian prime minister also called Trump's tariffs a "dumb thing to do".

Some Canadian provinces have also taken US liquor off the shelves in a show of defiance against the US.

The US stock market is in the red again today. At the time of writing, the S&P 500 has fallen 1.6% since market open.

That concludes our live coverage for today, but we will be back tomorrow with further updates and analysis. Thank you for joining us.

Good morning and welcome back to our tariff live blog. In the time since we signed off yesterday evening, Trump has also rolled back tariffs on a large number of Canadian goods. Stick with us for full details and analysis on what it means for markets and the economy.

Canadian goods shipped under existing free-trade pact will be exempt from tariffs

The exemption given to Mexico, which we reported on yesterday evening, will also apply to Canada.

In other words, goods shipped under North America's existing free trade agreement (the US-Mexico-Canada Agreement, or USMCA) will not be subject to tariffs.

Trump has also reduced the tariff on potash (an important ingredient in fertilisers) from 25% to 10%. This is used by US farmers.

The White House has said that around 62% of Canadian imports and 50% of Mexican imports will still face tariffs because they do not fall under USMCA.

Policy rollback does little to boost markets

The exemptions announced by Trump did little to boost the US stock market yesterday, with the S&P 500 ending the day 1.78% lower. The Nasdaq fell even further, down 2.61%.

"Even though Donald Trump has made more goods exempt from tariffs on Canada and Mexico, it’s the constant tinkering that’s upset investors," said Russ Mould, investment director at platform AJ Bell.

"If Trump had stuck to his guns, companies could have planned adjustments accordingly and known the lay of the land. The fact Trump keeps changing his mind confuses matters as companies have no idea what’s going on from one day to the next. That also means investors are unsure how to position their portfolios," he added.

Mould points out that the VIX measure of volatility jumped by 13.5%, "illustrating how investors are feeling nervous". He adds that futures suggest we could see a small recovery in US markets today, though.

How has the S&P 500 performed since markets opened today?

US stock markets have continued to fall today. At the time of writing, the S&P 500 is down around 1% compared to market open.

A weaker-than-expected US jobs report probably hasn’t helped things. US non-farm payrolls came in at 151,000 in February (versus a Reuters consensus estimate of more than 160,000). This is still higher than January’s revised estimate of more than 125,000.

Unemployment also ticked up slightly from 4% to 4.1%.

Richard Carter, head of fixed interest at wealth management firm Quilter Cheviot, described the report as “solid, if unspectacular”. He also points to “concerns that things may begin to sour in the coming months”.

Carter says tariff disruption is making it difficult for businesses to plan ahead, which could result in a delay to the reshoring of jobs that Trump is hoping to achieve.

As we sign off for the weekend, we will leave you with one positive. This week's tariff disruption could create opportunities for investors to snap up companies that are well-positioned to weather the storm – and at a lower price.

"For long-term investors, there’s some value hunting to be done here," says Derren Nathan, senior equity analyst at Hargreaves Lansdown. "Global tech giants with diverse geographical footprints are still well poised to lean into mega-trends such as artificial intelligence, electrification and automation."

We will be taking a closer look at this topic next week. Join us then.

The EU bites back

Welcome back to our live blog covering US president Donald Trump’s trade war.

Another week, another tariff announcement. This time, the measures are coming from the European Union (EU) which has announced retaliatory measures against the US. These are in response to Trump’s steel and aluminium tariffs which were announced in February, but kick in today (12 March). Trump’s metal tariffs apply to imports from all countries and are being levied at 25%.

The EU has said its countermeasures will impact US goods worth up to €26 billion in total, “matching the economic scope of the US tariffs”. The measures will come into effect in April, taking two forms:

• Firstly, the EU will resume tariffs that were previously imposed on the US under the first Trump presidency. “These countermeasures target a range of US products that respond to the economic harm done on €8 billion of EU steel and aluminium exports,” the European Commission said. These measures will kick in on 1 April.
• Secondly, the US will deliver a package of new tariffs impacting an additional €18 billion worth of US goods. These measures will kick in from mid-April.

Von der Leyen: countermeasures are “strong but proportionate”

President of the European Commission Ursula von der Leyen reiterated a message we have heard from various sources in recent weeks – that tariffs aren’t good for anyone.

“Tariffs are taxes,” she said. “They are bad for business, and even worse for consumers. These tariffs are disrupting supply chains. They bring uncertainty for the economy. Jobs are at stake. Prices will go up. In Europe and in the United States.”

Justifying the countermeasures, Von der Leyen added that the EU needed to take action to “protect consumers and businesses”. She described the EU’s measures as “strong but proportionate”.

What does it mean for markets?

“The winds keep blowing in different directions on tariffs, meaning that it is impossible for markets to establish the lay of the land,” said Russ Mould, investment director at AJ Bell. “It’s no wonder share prices have been bobbing up and down faster than a boat in a storm.”

US markets haven’t opened yet today, but they have taken a beating in recent weeks thanks to Trump’s tariff announcements. The S&P 500 is down almost 8% over the past month, while the Nasdaq is down more than 11%. The contagion effect has been felt globally, albeit to a lesser extent than in the US.

Despite this, European stock markets have risen so far this morning after the EU’s countermeasures were announced, indicating the strong response has been received positively by investors. Markets may also have been buoyed by the news that Ukraine is willing to accept a 30-day ceasefire proposed by the US (Russia is yet to publicly comment).

Canada to impose 25% reciprocal tariff tomorrow

Earlier this afternoon, Canada's finance minister Dominic LeBlanc announced that the country would impose reciprocal tariffs of 25%, impacting an additional C$29.8 billion of US goods. The tariffs will kick in from tomorrow.

These measures are in response to steel and aluminium tariffs from the US, which kicked in today. Canada is the biggest importer of steel into the US, bringing in around 6.6 million net tons last year.

UK still hoping for a trade deal

No retaliatory measures have been announced by the UK so far. Prime minister Keir Starmer told MPs that he is still trying to negotiate a trade deal. "I'm disappointed to see global tariffs in relation to steel and aluminium, but we will take a pragmatic approach," he said at Prime Ministers' Questions.

US inflation: some good news

Markets did receive some good news today in the form of a lower-than-expected US inflation reading. The headline figure came in at 2.8% in February, down from 3% in January. Wall Street analysts had been forecasting a reading of 2.9%.

Despite this, Lindsay James, investment strategist at wealth management firm Quilter, says it is a "step into the unknown" from here.

She adds: “Ultimately, tariffs are an inflationary economic tool and will raise prices for consumers. Whether this is a one-time price change or something more sustained remains to be seen, but Donald Trump was elected in part due to his rhetoric to bring down inflation and make things cheaper. Tariffs are the opposite policy response in order to make this happen and instead risk tipping the US economy into recession. We are already seeing weak data points emerging as a result of the policies of the Trump administration – although other elements do continue to hold up.

“Should the data turn weaker and economic growth slow down in response to tariffs, then the Federal Reserve is likely to have little choice but to cut rates. However, it could find itself in somewhat of a predicament if GDP growth slows at the same time as inflation picks up after the effects of the new tariff regime have bedded in. This will make it harder to act. This is something that is concerning markets just now.”

Valuation opportunities?

There has been a lot of talk of US recessionary risks ramping up but Daniel Casali, chief investment strategist at wealth management firm Evelyn Partners, thinks US stocks could stage a recovery. In his view, the outlook for company earnings still looks positive.

He says: "As it stands the consensus expects MSCI USA earnings-per-share (EPS) growth of 12.1% in 2025, a modest downgrade from 14.5% at the start of the year. However, in early January, EPS for 2026 has been revised up to 14.5% from 13.2%. Overall, there has been little change in companies' earnings expectations when averaging out this year and next."

If these earnings forecasts remain robust, and the economy doesn't deteriorate significantly from here, Casali argues that today's environment could offer a good buying opportunity.

"The recent US equity price falls mean valuations for the so-called US ‘Magnificent Seven’ (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla) look more favourable. For instance, their aggregate forward price-to-earnings ratio is at a 40% premium compared to the rest of the US S&P 500, its lowest level since 2018," he explains.

We will leave you with that thought as we sign off for the evening. Thank you for joining us.

Trump reaches for the bottle in latest tariff threats

Welcome back to our live blog. The latest news today is that teetotaller Donald Trump has threatened to slap a 200% tariff on any alcohol coming into the US from the EU. Trump made the announcement on his social media platform Truth Social today.

This is essentially a retaliatory tariff against a retaliatory tariff. It comes after the EU announced countermeasures yesterday in response to steel and aluminium tariffs from the US. The EU said it would impose taxes on up to €26 billion worth of goods from the US, including bourbon.

"[Tariffs on EU alcohol] will be great for the Wine and Champagne businesses in the U.S.," Trump wrote on social media.

A pedant might counter that Champagne technically needs to originate from the Champagne region of France.

How have stock markets responded?

European alcohol companies have seen their share prices fall as a result of the news.

Pernod Ricard, a constituent of the French CAC 40 has dropped around 4% today, at the time of writing. Its brands include Absolut vodka, Beefeater gin, Malibu rum and more. The US is one of the company's top markets, with 18% of net sales coming from the region in first half of the fiscal year 2025.

Remy Cointreau is also down almost 4%, while Davide Campari is down closer to 5%.

Alcohol tariffs "clearly a negative" for consumers and industry

Chris Beckett, head of equity research at wealth management firm Quilter, says Trump's latest tariffs are "clearly a negative" for both American consumers and the European alcohol industry.

"Provenance matters when selling premium spirits and wine – cognac has to be from Cognac, champagne from Champagne etc. As a result, it is not a category that the Trump administration will encourage onshoring with," he says.

"That said, what this could do is result in some substitution from consumers to American sparkling wine and domestic spirits. This in turn would result in increased sales for some American businesses and Trump could still declare victory in one way or another," he adds.

As Scotland is not in the EU, Scotch whisky is not currently included in the threat. Beckett points out that this industry was targeted with 25% tariffs during Trump's first presidency, with performance taking a hit as a result. He adds that the sector will be "desperate not to see a repeat of this".

"For now, the UK government is taking an understandable but unprincipled decision to stay as far away from US/EU trade disputes as possible in the hope British businesses are left untouched, or at worst face lower tariffs being implemented," Beckett says. Trump and prime minister Keir Starmer have had a relatively positive relationship so far, but the US president is famously unpredictable.

Tesla (NASDAQ:TSLA) is one of the most popular stocks on DIY investment platforms. Data from Interactive Investor reveals it was the third most-purchased investment on the platform last month. However, sales of the EV giant’s cars have nosedived in Europe so far this year, which raises the question: is the case for investing in Tesla starting to wane?

Tesla’s European sales were down more than 45% year-on-year in January, according to the European Automobile Manufacturers’ Association (ACEA). Just 9,945 new units were registered in the region in the first month of the year, versus more than 18,000 a year ago.

In terms of market share, the number of Teslas registered has fallen from 1.8% to 1%. This is despite the fact that battery-electric vehicles made up 15% of automobiles registered in January, up from 10.9% a year ago.

Reports suggest chief executive Elon Musk’s politics could be partly to blame. Musk played a prominent role in US president Donald Trump’s election campaign, before being appointed in an advisory capacity as part of the new Department of Government Efficiency (DOGE).

Musk has been embroiled in several controversies, including endorsing the far-right AfD in the 2025 German elections. He was also widely interpreted as doing a Nazi-style salute at an event after Trump’s inauguration – something Musk has denied.

In a survey of 1,000 people conducted earlier this month, e-vehicle website Electrifying.com found that 60% of car buyers would be put off buying a Tesla as a result of Musk’s behaviour and reputation. This included both current EV owners and those planning to switch to an EV in the future.

The survey also showed that 61% of EV owners and 56% of potential buyers would be open to buying from a Chinese brand. Tesla’s greatest competitor is Chinese car company BYD, and the latest industry data suggests it is snapping at Tesla's heels. BYD delivered 1.76 million battery electric vehicles in 2024, only slightly behind Tesla’s 1.79 million.

Despite this, other factors are also at play and could have contributed more meaningfully to Tesla's dip in sales. Analysts have pointed out that customers could be holding off from making a purchase while they wait for the upgraded Model Y to be released in the spring. Likewise, the release of a refreshed Model 3 at the start of last year may have flattered the figures from a year ago when making the comparison.

Commenting on the latest figures, Morningstar strategist Seth Goldstein told MoneyWeek: “January is typically a slower month for auto sales, however, a 45% decline versus a year ago is likely driven by multiple factors. First, the current Tesla lineup is older, so customers may be waiting for the new Model Y and the new more affordable SUV set to enter production later this year.

“Second, we see increased competition in 2025 for long-range EVs, which we define as greater than 400 km, that are priced similar to Tesla. The increased competition at similar range and price points could lead some consumers to choose an alternative, versus prior years where Tesla's competitors either had lower range or a higher price.

“Also, some customers could be holding off on purchasing a Tesla until full self-driving is approved in the EU, as Tesla is still waiting for approval. While Elon Musk's political statements create a risk for Tesla's brand to potentially turn away consumers, I can't say this is a key driver behind one bad month for Tesla.”

Should you sell your Tesla stock, or buy the dip?

At the time of writing, Tesla’s share price has fallen almost 25% year to date, making it the worst-performing of the Magnificent Seven tech stocks so far in 2025. It comes after a mixed 2024. The stock had a dismal start to the year followed by a dramatic rally after Donald Trump’s election win, ultimately hitting a new high in December.

The stock’s momentum in the aftermath of the US election result was largely driven by Musk’s close ties to Trump. Some investors believe Musk will use his position to help shape autonomous driving regulations, removing a significant roadblock for Tesla.

Despite this, challenges remain. Tesla’s fourth-quarter earnings disappointed analysts’ expectations, with revenues coming in almost 6% below forecasts ($25.7 billion versus estimates of $27.2 billion). Meanwhile, earnings per share came in at $0.66 versus estimates of $0.77.

Sales have been disappointing and, against a tough economic backdrop, Tesla has been under pressure to cut its prices to compete with cheaper alternatives. Figures published by the company on 2 January showed total deliveries fell on an annual basis in 2024 for the first time in over a decade.

A more affordable model has been promised in the first half of this year, and investors are hoping this will boost the sales outlook. Despite this, one of the main risks for investors is that Tesla’s shares still look significantly overvalued, even after recent share price losses.

Morningstar’s fair value estimate for the stock is $250, below the current share price of $290. This would suggest the stock hasn’t fallen far enough to create a case for “buying the dip”. Despite this, Morningstar analysts did actually raise the estimate from $210 after the latest earnings call, based on an assumption of “higher autonomous driving software adoption and faster growth in the energy generation and storage business”.

On the autonomous driving point, Musk said on the earnings call that he expects Tesla to be operating “unsupervised activity with [its] internal fleet in several cities by the end of the year”. Likewise, when it comes to energy generation and storage, the company said it expects energy storage deployments to grow by at least 50% year-on-year in 2025. This is becoming an increasingly important part of the business. Revenues in this division came in at $3.06 billion in the final quarter, up 113% on a year ago. The division accounted for 12% of Tesla’s overall revenues in the fourth quarter.

Nevertheless, the company still looks too expensive at current prices. Writing about the stock earlier this month, Jacob Falkencrone, global head of investment strategy at investment bank Saxo, said: “Even after its recent drop, Tesla remains by far the most expensive stock in the Magnificent Seven in terms of valuation, trading at roughly four times the forward price-to-earnings ratio of the rest of the group’s average.

“This has led to increasing concerns among investors that Tesla’s valuation is still too high, given the company’s slowing growth and execution risks. Wall Street remains divided: roughly half of analysts rate Tesla as a buy, while the other half suggest holding or selling, according to Bloomberg.”

Maybe things aren’t so gloomy for UK equities after all. Despite tepid economic growth in the second half of last year and a tax-raising Autumn Budget in October, investor confidence in UK equities has risen by 6% this month, according to investment platform Hargreaves Lansdown.

Perhaps more impressive is the fact that the UK has bucked the trend. Confidence in every other region fell, with investors 14% more negative on emerging markets and 11% more negative on Japan. Although North America remains the region with the highest level of confidence overall, investors are now less positive than they once were, with confidence plummeting by 13% in February.

To some extent, this mirrors what we are seeing in stock markets. The FTSE 100 has hit several record highs so far in 2025, and is up almost 6% since the start of the year, at the time of writing. Meanwhile, the S&P 500 (which delivered more than double the FTSE’s return in 2024) is off to a slower start than its British counterpart, up just over 4%.

The US stock market had a strong run after Donald Trump’s election win in November, buoyed by the prospect of deregulation and tax cuts. However, the start of his tariff agenda has introduced a greater degree of uncertainty in recent weeks.

The launch of Chinese chatbot DeepSeek also threw the US tech sector a curveball in January, indicating that China might not be as far behind America in the AI race as previously thought. Stock market darling Nvidia, the US chipmaker, saw dramatic losses in the aftermath and its share price has only just recovered to where it was at the start of January.

Commenting on the latest developments, Victoria Hasler, head of fund research at Hargreaves Lansdown, said: “The inauguration of a new president in the US has brought speculation of policy change, and with it the potential for trade wars. Meanwhile, geopolitical instability and conflict still dominates headlines. In such uncertain times, investors have retrenched into what is most familiar to them – domestic UK equities.”

But what about the Budget?

Investor confidence in UK equities appears to have risen in recent weeks – but what about the Budget-related tax changes that will kick in from April? Businesses and investors have been deeply critical of chancellor Rachel Reeves’s decision to raise employers’ National Insurance contributions, arguing that it will push inflation up and make growth challenging.

In a recent survey of 52 leading retailers, conducted by the British Retail Consortium, 67% said they were planning to raise their prices this year to offset the effect of the tax hike. More than half (56%) said they were planning to reduce their employees’ hours or overtime, while around half of the respondents said they were planning to reduce their headcount. Some commentators have also warned that the tax changes will lead to fewer (and smaller) wage increases for employers.

“All of this takes more money out of the real economy through rising unemployment and inflation, and provides a headwind to earnings,” Jason Hollands, managing director at investment platform Bestinvest, recently told MoneyWeek.

Despite this, the latest data from Hargreaves Lansdown suggests confidence in UK economic growth rose by 7% in February, outpacing even the renewed optimism in UK equity markets (which is up 6%).

The latest UK GDP figures from the Office for National Statistics (ONS) also showed that the economy unexpectedly stuttered into life at the end of last year, growing by 0.1% in the final quarter. In 2024 as a whole, the economy grew by 0.9%, up from 0.4% the year before.

While a higher-than-expected GDP figure is good news, it is less of a cause for celebration when you remember that UK growth before the 2008 financial crisis averaged around 2% a year. Britain still has a significant growth problem on its hands, and the Bank of England recently slashed its 2025 growth forecast in half from 1.5% to 0.75%.

Why, then, is confidence up? Hasler puts it down to the “relatively stable political picture in the UK compared to much of the rest of the world”, as well as December’s “benign” inflation reading of 2.5%.

It is also worth noting that the rise in investor confidence in the UK was off a low base. North America is still the region with the highest absolute confidence, according to Hargreaves Lansdown, while confidence in the UK remains lower than most of the rest of the world, barring Europe. But could this be the start of a shift?

Temporary boost or longer-term shift?

Whether this is a temporary boost or the start of a longer-term change will depend on how various economic and geopolitical narratives play out. If Donald Trump introduces widespread tariffs, for example, it will be bad news for the global economy – but the American consumer is likely to bear the brunt.

A general rule that has been quoted by economists at Goldman Sachs, among others, is that each time the average tariff rate goes up by one percentage point, the rate of core US inflation goes up by around 0.1 percentage points. If the US economy becomes challenged, investors could be encouraged to shop closer to home when deciding which companies to back.

Monetary policy will also play a role in determining the outlook. Most economists are expecting the Bank of England to cut UK interest rates around four times this year. This should reduce pressure on UK businesses – although it is worth remembering that part of the reason rates are now being cut is that growth concerns are becoming more pressing.

Meanwhile, officials at the Federal Reserve (including chair Jerome Powell) recently said they were “not in a hurry” to lower US interest rates further. Polling from news agency Reuters indicates the Fed will probably cut rates twice this year, however the range of responses was wide, with no majority view among economists. This suggests we could see a divergence between the UK and the US when it comes to monetary policy, with greater uncertainty and a slower pace of cuts across the pond.

While headline inflation in the UK could hit 3.7% in the third quarter of the year, according to the latest forecast from the Bank of England, the Monetary Policy Committee has said that domestic inflationary pressures are waning. It is global energy prices that will drive the spike rather than challenges in the UK. Meanwhile, in the US, Trump’s tariff regime could unleash bigger problems.

There are still a lot of ifs, buts and maybes – and April’s tax changes could act as another stumbling block for UK companies and the economy. However, for now, this latest news is welcome.

At the end of 2023, the S&P 500 index was trading at 19.8 times forecast 2024 earnings, having risen 24% in the year. The MegaCap Eight, according to Ed Yardeni of Yardeni Research, was trading at 28 times 2024 earnings and the rest of the market at 17.3.

Although the consensus expectation of a recession in 2023 had been proved wrong, some economists were still predicting one in 2024. Worries about inflation were common and the advice of most pundits was to switch from the “overvalued” US market into the rest of the world, on a forward multiple of 13.

How wrong that would have been. American equities rose 24.4% in 2024 to trade on a prospective multiple of 20.7 times 2025 operating earnings, compared with a return of 5% for the rest of the world in US dollars. While 4.5% of the rise in the US was attributable to a further market rerating, nearly 20% was due to earnings growth.

With the rest of the world trading on 13.2 times forward earnings at the end of the year, earnings growth was 8.8%. With gains of between 14% (Microsoft) and 182% (Nvidia), the MegaCap Eight again outperformed the S&P 500.

The sceptics spent much of 2024 trying to work out why they had been wrong about the US economy, inflation and the stock market. In a report entitled The Relentless March of American Exceptionalism, Louis Gave of Gavekal noted that “US growth stocks have outperformed global value stocks in 16 of the past 18 years. To say that this is an impressive performance would be a massive understatement”.

He added that “the US, with 4% of the world’s population, roughly a quarter of global GDP and a third of global profits, now accounts for more than two-thirds of the MSCI World index’s capitalisation”.

He explained this with the familiar litany: a much cheaper cost of energy than any other developed economy; the world’s biggest domestic consumer market; and the US dollar’s position as the world’s trading and reserve currency.

Curiously, he failed to mention America’s extraordinary record of innovation, as illustrated by the phenomenal rise of the MegaCap Eight and many others, and the reacceleration of productivity growth in the last 15 years, in sharp contrast to the UK and much of Europe.

What could go right for the US economy?

Like other sceptics, he went on to identify what could go wrong, from sanctions backfiring to the displacement of the dollar and the shale revolution fizzling out. A more interesting question is to ask what could go right, justifying continued US outperformance.

Perhaps the answer lies in the “3-3-3” strategy of Scott Bessent, incoming president Donald Trump’s proposed treasury secretary: 3% budget deficits, 3% real GDP growth, and three million barrels of oil equivalent per day. Many commentators believe this to be impossible, particularly in the context of the current budget deficit of 6% of GDP and Trump’s intention to cut taxes. But what if it isn’t?

Growth of 3%, assisted by higher energy output and a deficit of 3% would stabilise the US’s debt to GDP ratio, potentially allowing bond yields to fall. Deregulation and tax cuts should stimulate growth, more than counterbalancing the consequences of sharply reduced government spending. Sustained or higher productivity growth would be positive for corporate earnings and lower bond yields would justify high valuations.

Yardeni, whose optimism about the market was vindicated in both 2023 and 2024, remains optimistic, with an S&P 500 target of 7,000 by the end of 2025, a 19% gain. He calls this “the Roaring 2020s scenario” and expects it to continue into 2026. The 3.3% market setback of recent weeks could extend to 10% in the short term, but that would be a buying opportunity.

He expects corporate revenues to grow 5%, profit margins to widen and “earnings per share to increase from roughly $240 to $285”, with $320 in prospect for 2026 and 360 for 2027. Hence the S&P 500 forecast of 7,000 by the end of 2025, 22 times 2026 earnings. This forecast is based on annual productivity growth climbing to 3%-3.5%, strong household and corporate spending, “sticky” inflation and a pause in interest-rate cuts. Productivity growth keeps unit labour costs low.

So when do other markets start to perform like the US? When they pursue a comparable economic strategy: energy self-sufficiency (or better), lower taxes, deregulation, far lower public spending and budget deficits in line with economic growth.

At present, Britain and much of Europe are going in precisely the opposite direction, but that will change as the success of these policies in the US, Argentina and southern Europe becomes apparent.

In the meantime, pessimism about growth in the UK and northern Europe leaves little room for negative surprises and though government finances are severely stretched, the corporate sector is in good shape and consumers have delevered to such an extent that it is doubtful whether lower interest rates would actually help economic growth.

Very little debt is at floating rates of interest, but many deposits are. Inflation paranoia is everywhere but slow or negative monetary growth, thanks to the collapse of credit growth by the banking sector after the 2008 financial crisis, means that fears are overdone. Non-US markets may continue to lag the US in 2025, but the overall pessimism looks exaggerated.

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The end of the year may prompt you to review your finances ahead of the new year, but with several bank holidays over the Christmas period, investors may be wondering when the stock market will be open.

The UK stock market will be closed on Wednesday, 1 January 2025, to observe the first day of the new calendar year.

The UK stock market opening times are 8am to 4.30pm Monday to Friday, with a small break between 12pm and 12.02pm.

However, public holidays and events can impact when the stock market opens. For instance, the stock market is not open on Christmas but observes a half-day on Christmas Eve.

This year has seen a lot of highs and lows – inflation appeared to peak at 3.8% and has been slowing since, interest rates have been cut four times, and the Autumn Budget has resulted in higher tax bills for wealthy households.

We look at when the stock market is open in the final few days of 2025 and the trading calendar for 2026.

Don’t miss our key money dates for 2026 guide.

Is the UK stock market open on New Year?

The UK stock market will be closed on New Year’s Day, which falls on Thursday, 1 January 2025.

The London Stock Exchange (LSE) observes eight standard holidays throughout the calendar year, including Christmas Day, Boxing Day and Good Friday. The LSE recognises public and bank holidays in England and Wales – but not bank holidays which are only in Scotland or Northern Ireland.

On New Year’s Eve, which falls on 31 December 2025, the stock market is open for a half-day and will close from 12:30pm.

Investors can ring in the new year with an extended holiday before getting on with work and other commitments, such as filing a tax return to HMRC before the deadline passes on 31 January.

When is the UK stock market closed in 2026?

Here are all the bank holidays in 2026 and what it means for investors looking to trade on the London Stock Exchange.

When is the US stock market closed in 2026?

Both the New York Stock Exchange (NYSE) and the Nasdaq observe ten stock market holidays every year. Sometimes, the markets close early a day before or after a holiday.

For instance, the US markets are open for half a day on Christmas Eve and Black Friday, which is the day after Thanksgiving.

Unlike the London Stock Exchange, the US stock markets will remain open for trading on New Year’s Eve. However, the US markets will be closed on New Year’s Day.

Both stock exchanges’ standard opening hours are Monday to Friday 9:30am to 4pm Eastern Standard Time (EST), which is 2:30pm to 9pm in the UK.

Here are the stock market holidays for 2026.

Shares in UnitedHealth slumped by 10% following the fatal shooting of UnitedHealthcare’s CEO Brian Thompson on 4 December. Many people were “indifferent” to the assassination, with the group’s business practices in the spotlight instead. Some lambasted the group for “placing greater emphasis on their bottom line [than] providing quality coverage to its insurees”. Some investors worry that UnitedHealth “will see reduced customer loyalty, resulting in worse financial performance”.

It’s not only UnitedHealth, which saw its market capitalisation fall by $55 billion, that is facing pressure, says Forbes’ Derek Saul. There has been a wider sell-off in health insurance shares with a range of companies, such as Elevance Health, Cigna, Centene and Humana all losing ground. The fear seems to be that the anti-insurer sentiment expressed by the public may pressure the industry “to adjust how they handle coverage decisions”. If companies don’t, they know that they might eventually “face the wrath of the public” in the form of increased regulation.

Thompson appears to have become “a proxy for the healthcare industry writ large”, says Bloomberg’s Lisa Jarvis. The big question is whether this rage is channelled into something useful, at a time when the incoming Trump administration “seems keen to find cuts in ways that will directly harm Americans’ access to care, whether by making insurance less affordable or through deep cuts to Medicaid”.

For now, most analysts still expect the new administration to focus on “traditional Republican priorities”, such as trying to shift more patients into the privately administered programme known as Medicare Advantage, says David Wainer in The Wall Street Journal.

However, even under Trump, Republicans could be willing to pursue greater scrutiny on certain practices by insurers such as the requirement for a doctor to secure approval before providing a service, which the Biden administration had already “begun cracking down on”. At the very least, insurance executives could be forced to “tread more carefully when it comes to denying medical claims” in future.

Overall, something is very wrong with the US healthcare system, says Robert Cyran for Breakingviews – “only 5% of respondents ranked the services provided by health insurers as excellent in a 2023 Gallup poll, with about a third classifying them as poor”.

What’s more, despite the US spending $12,000 per head on healthcare, 2.5 times the average for countries in the Organisation for Economic Cooperation and Development, Americans still have “a lower life expectancy than most countries in the bloc”. Insurance premiums and out-of-pocket spending by individuals have also risen above inflation, with the US “spending more money and time on insurance, administration, patient paperwork, cost disputes and bickering over insurer approval for treatments”.

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Investors searching for a coherent economic policy in Donald Trump’s pronouncements “are about as likely to find enlightenment as soothsayers poking around in the entrails of a sacrificial goat”, says Ben Wright in The Telegraph. That hasn’t stopped US stocks from rallying since his election win. You might think the president-elect’s talk of tariff wars and mass deportations would be giving investors pause. Instead, they have been frenetically pulling funds from Europe and emerging markets and piling into Wall Street. Money managers seem to have concluded that Trump’s return means there is no alternative to US stocks.

Wall Street has been having a “phenomenal” year, with the S&P 500 up 27% and the Nasdaq 100 rising 29%, says the Novel Investor blog. The last two years have been unusually “calm”, with few big sell-offs. Just remember that such tranquil bull markets can induce complacency, encouraging investors to take on more risk than they would otherwise feel comfortable with. Markets are said to climb a “wall of worry”, meaning that though dogged by anxieties they nevertheless tend to rise, says Ben Carlson in his A Wealth of Common Sense blog. That was the case for much of this year, with robust gains despite weak measures of market sentiment. Yet since the US election, the mood seems to have shifted. “Animal spirits” have awakened and signs of froth are multiplying.

Are US stocks overhyped?

The S&P 500 has gained almost 57% since late 2022, says Matt Phillips for Sherwood News. That’s the best two-year run since the late 1990s tech bubble. That boom ended in tears, with the S&P selling off 50% peak to trough. Bulls argue that today’s tech giants are highly profitable and “nowhere near as overvalued as they were in the 1990s”. Perhaps, but at its peak, Microsoft’s 1990s’ valuation was “not dissimilar to Nvidia today”. That didn’t stop the shares from crashing 60%.

US starting valuations are now so high that analysts forecast weak performance over the next decade, says James Mackintosh in The Wall Street Journal. Bank of America is predicting annual returns of 0%-1% for 10 years, a “catastrophic” showing. Bulls argue that the US stands to gain from artificial intelligence (AI), but there is still little evidence that the hundreds of billions of dollars that have been poured into the technology will generate a decent return. Another argument is that America is much more innovative than rivals elsewhere. But remember that in the 1980s everybody thought Japanese car and electronics firms were about to conquer the world. Corporate hubris often precedes a fall.

The US accounts for 27% of global GDP but 70% of all global stocks, says Ruchir Sharma in the Financial Times. “Investors are committing more capital to a single country than ever before in modern history.” The strengths of US corporations are real, but “one definition of a bubble is a good idea that has gone too far”. American shares are “over-owned, overvalued and overhyped”.

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Many investors may be wondering, is the stock market open on Christmas Day? The answer to that question is, no, the UK stock market will be closed on Thursday, 25 December for Christmas.

Typically, the UK stock market opening times are 8am to 4.30pm Monday to Friday with a small break between 12pm and 12.02pm. Public holidays and major events can affect trading times, as was the case with the Bank Holiday Monday in August.

Investors will be hoping for a lift to their portfolio this holiday season, but turbulent times threaten another year without a Santa rally. This includes Donald Trump’s tariffs and investors’ fears of an AI bubble bursting – but we’ve also seen gold and silver reaching all-time highs and Nvidia’s market capitalisation crossing the $5 trillion mark.

Since the Autumn Budget last month, a lot has changed for savers and investors alike – we’ve seen inflation, mortgage rates and interest rates falling. If that’s made you unsure about how to invest your money, we look at where to invest and the best sectors to consider in separate guides.

Below, we look at UK and US stock market opening times during the Christmas period, and how it will impact trading on those days.

We also look at if the stock market is open on New Year’s Eve and New Year’s Day.

Is the stock market open on Christmas?

The UK stock market will be closed on Christmas, which falls on Thursday – 25 December 2025.

This is one of the eight standard holidays observed by the stock exchange throughout the year, like the spring and early May bank holidays, Good Friday and Boxing Day.

The stock market is also shut on Friday, 26 December, for Boxing Day. However, that’s not the case on Christmas Eve – the London Stock Exchange (LSE) will instead observe a half-day and close from 12:30pm.

The LSE only follows English bank holidays – not Scottish, Northern Irish or Welsh holidays.

We look at the key money dates for 2026 in a separate guide.

When is the UK stock market closed in 2025?

Here’s a breakdown of all the UK stock market holidays in the coming month, so you can plan your trading activity accordingly.

When is the US stock market closed in 2025?

If you choose to diversify your holdings across the pond, we also look at the New York Stock Exchange (NYSE) and Nasdaq’s open times and holidays this month.

Both stock exchanges’ standard opening hours are Monday to Friday 9:30am to 4pm Eastern Standard Time (EST) time, which is 2:30pm to 9pm in the UK.

American stocks have become a headache for many investors. Over the past 15 years, they have raced ahead of other major markets, to the point where they now account for more than 70% of the MSCI World index.

If you manage a fund benchmarked against that, you cannot afford to have too little in the US, because if it keeps beating everything else, your performance will lag badly and your job will be on the line.

This may be why some managers are saying that Donald Trump’s threats of raising tariffs on imports mean that the US will keep beating the world – they need a plausible reason to keep buying the US as it rises. In theory, tariffs should be bad news for growth and for stocks – being likely to hurt trade and push up inflation – but America is exceptional, they argue: it’s the world’s largest economy, the owner of the global reserve currency, the key source of import demand and so on. The rules that apply to other countries don’t apply to the superpower and its companies should suffer less than those in a trade war.

This feels one-sided. Setting aside economic arguments around the impact of tariffs, note that US firms have been huge beneficiaries of globalisation, which could now make them equally huge targets for other governments. Domestically, there are obvious dangers in Trump’s arbitrary policies and whether he or some of his appointees will take aim at sectors such as tech or healthcare, or at any company that annoys him. Yes, the US could still beat the world – it remains the most innovative economy – but there are also reasons to fret about the tail risks that come with having 70% of assets in one country. So paring back the US can be about managing risk rather than being outright bearish.

How to hold US stocks

While most global funds, passive or active, are likely to have around 70% in the US, there are alternatives with lower exposure. The recently launched Invesco MSCI World Equal Weight ETF (LSE: MWEQ) invests the same amount in each stock, rather than weighting by market capitalisation. Since America has more giant companies and higher like-for-like valuations across the market, this brings the US share of the index down to 45%. The downside of equal-weighted strategies is that turnover is higher. Until there’s a real-world performance record for this ETF, we can’t see how well the manager manages to optimise the portfolio-management process to reduce the drag of trading costs from this.

I’d like to have the option of a GDP-weighted index fund, which uses capitalisation weighting on a country level but sets each country’s share of the index in line with its share of world GDP. The MSCI World GDP Weighted has 49% in the US, while the MSCI ACWI GDP Weighted (which includes emerging markets) has 30%. Both have beaten the equal-weighted indices over 10 years, but there are still no ETFs that track them. But we can combine regional or country ETFs to get closer to these weights. At its simplest, you could hold a US fund alongside the Xtrackers MSCI World ex US ETF (LSE: EXUS) in a 30%/70% or 50%/50% mix, or whatever ratio you prefer.

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Investors are feeling as “pro-US as a bald eagle eating apple pie”, says Luke Kawa for Sherwood News. Bank of America’s latest global fund manager survey shows marked bullishness on US assets and a dismissive attitude to the rest of the world. Yet investors could be repeating the mistakes they made in the president-elect’s first term when many “Trump trades” – from US small caps to a stronger dollar – enjoyed a short pop only to underperform over the full four-year term.

We are sometimes advised to take Trump “seriously, but not literally”, says James Mackintosh in The Wall Street Journal. On Wall Street that has resulted in a pick ’n’ mix: investors are taking the Trump policies they like (tax cuts and deregulation) seriously, while dismissing those they dislike (immigration clampdowns and high tariffs) as just “campaign rhetoric”.

That could prove exactly wrong. Trump needs Congressional support for his pro-growth plans, but can quickly impose tariffs and immigration rules himself via executive order. Trump’s first year in 2017 was marked by chaos and scrapped trade deals – it was only later that he finally gave Wall Street a tax cut present.

The post-election stock rally has ebbed as Trump unveils his new administration picks, says Randall Forsyth in Barron’s. The nomination of scandal-ridden loyalists promises a lot of bickering ahead that could stop Congress from doing anything useful.

What does US inflation mean for Wall Street?

The inflation that sank Biden’s popularity is now Trump’s problem, says John Mauldin in his Thoughts from the Frontline newsletter. The incoming president’s “basic instinct” to cut government spending is good, but he won’t make the serious changes to welfare policies that would be needed to balance the books. As long as federal deficits stay in the $1.5 trillion range, the new administration will “be dealing with inflationary issues”. US core inflation (which excludes volatile food and energy prices) rose to 3.3% in October. Across a range of statistical measures, “inflation remains above 3%... and is no longer clearly declining”, says John Authers on Bloomberg.

Another headwind is that bond yields are rising. Credit is “meaningfully tighter than many currently working in finance have ever known”. The yield on the US 10-year Treasury Inflation-Protected Security (TIPS), a proxy for interest rates after inflation, is now above 2%. That doesn’t sound like much, but it’s higher than it was for 14 years prior to 2023. Trump isn’t so mad as to pour “fuel” on the “inflationary fire” with massive tariff hikes, says Rana Foroohar in the Financial Times.

But that’s no reason for calm. The US is “way overdue” a recession and big market correction at some point over the next four years. From hidden leverage in private equity to crypto assets that have no lender of last resort, financial risks are mounting. “I think we’ll get a two-year sugar high under Trump,” says Dennis Kelleher of Better Markets, “but down the road, we’re looking at a potentially catastrophic correction – something much worse than 2008.”

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American small caps (firms with market capitalisations of up to $2 billion, although some would include companies worth as much as $10 billon) have traditionally been seen as the best place for investors seeking high long-term returns. They have outperformed large caps since 2000, says Jan Willem Berghuis of Van Lanschot Kempen. Over the past 15 years, however, the small fry have fallen from favour and are “struggling” to match the performance of their larger counterparts, says Freddy Colquhoun of JM Finn. The good news is that economic headwinds are abating and the end of uncertainty over the election is already providing a short-term boost. And as the frenzy around large-cap tech stocks cools, the depth and breadth of the US small-cap market will make it look particularly attractive in the longer term.

Why have US small caps underperformed?

One reason for the recent poor performance by US small caps is that they tend to be more vulnerable to negative shocks to the economy, such as the rise in inflation. The subsequent rise in interest rates particularly hurt a sector that tends to “borrow more and need more regular refinancing”, as Oren Shiran of the Lazard US Small Cap Equity fund points out. Seventy per cent of small-cap debt is coming due for repayment in the next five years, compared with 45% for large-cap debt, says Shiran, and 40% of the debt that small-cap firms hold is on variable rates, compared with only 5% for large caps.

Small caps are also particularly vulnerable to talk of a “hard landing” or a recession in the US, says Alex Knox, co-manager of Premier Miton’s US Smaller Companies and US Opportunities funds. Small caps get around 70%-80% of their revenue from the US, compared with around half for the stocks that make up the S&P 500, “which really isn’t a US index anymore”. So they should be less exposed to ructions in global trade as a result of Donald Trump’s protectionism. In fact, many of the headwinds that have held small caps back are “becoming tailwinds that could push them forwards”, says Knox.

The US Federal Reserve has started to cut interest rates – the base rate is now down by 0.75 percentage points from its peak – and “research suggests that small caps tend to do better during a rate-cutting cycle”. Indeed, the start of a rate-cutting cycle may be one of the reasons small caps have started to “normalise”, performing better than large caps since June. Knox believes fears of a recession are abating and that expectations are shifting towards anticipating a soft economic landing, especially as the US consumer “seems to be in relatively good shape”.

Small caps are Trump trades

Over the past few months, worries about the presidential election, especially over what would happen if Trump lost but refused to accept the result, had been weighing on the sector – “markets don’t like uncertainty”, as Knox says. But with the election now out of the way, and concluded without the disputes and legal battles that many had been dreading, this cloud will now be lifted, leaving small caps space to power ahead. Trump’s victory also removes the risk of US corporate taxes rising from 21% to 28%, something the Democrats had been pushing for, says Dan Squires of Saxo. Such a move would have led to a “swift, one-off negative adjustment” in the prices of US shares, especially those that make their money domestically. As it is, small caps look particularly well placed to benefit from Trump’s proposed programme of tax cuts and deregulation, especially as Republicans managed a “clean sweep” and take the House of Representatives as well as the Senate and White House, says Colquhoun. And it remains to be seen whether Trump will really impose the blanket tariffs he promised on the campaign trail. Colquhoun thinks that fears on this score are overdone.

Indeed, small caps could actually benefit if the US imposes some additional trade barriers in certain sectors, says Mark Ellis of the Nutshell Growth Fund. Tariffs may push up prices for larger firms and for the consumer, and invite retaliation from America’s trading partners, but that would just make goods produced by domestic companies more attractive. After a period in which “large companies have enjoyed the benefits of increasing globalisation”, the “pendulum has already begun to swing in the other direction”, and “many companies in the US have begun to move production back to the shores of the US”, says Matt Mahon of T. Rowe Price. This has created a “unique opportunity” for smaller, US-focused companies to gain from the “resulting job creation, infrastructure development and economic stimulus driven by these long-term capital inflows”, says William Blair Investment Management’s Rob Lanphier.

Were Trump to blunder in his second term, there’s still a limit to how badly things can go, says Chris Metcalfe of IBOSS, part of Kingswood Group – “fiscal and monetary support” is always likely to be forthcoming “at the first sign of trouble, which seems to have become the new playbook for the US, as well as many other countries around the world”.

Why small caps look stunningly attractive

Even if the economic situation ends up being a little bumpier than expected, or Trump’s policies backfire badly, that doesn’t mean US small caps will necessarily suffer. Small caps are valued in such a way that the US economy “doesn’t have to be stunningly amazing for them to do well, just not completely dire”, says Mark Sherlock of Federated Hermes. Indeed, “even though small caps have cumulatively lagged the market since 2011, they have actually grown their earnings faster than the S&P 500”, as Brett Reiner of the Neuberger Berman US Small Cap fund points out. Smaller companies now look “stunningly attractive”, especially when compared with the valuations of larger companies, agrees Sven Anders of JPMorgan.

The forward price/earnings ratio of the Russell 2000 (one of the main small-cap indices) has historically traded at an average forward premium of around 30% to that of the S&P 500, to account for the superior growth potential of smaller companies. Right now, however, the two are trading at similar levels – and, according to other measures, the small-cap index is actually now at a slight discount to the S&P 500.

Another indicator that small caps are good value is that the S&P 500 is heavily concentrated, with just five companies (Apple, Microsoft, Amazon, Google/Alphabet and Nvidia) accounting for around 30% of the market. Just as high levels of market concentration (although on a much smaller scale than today) in the early 1970s and at the height of the tech boom in 2000 were followed by a period where smaller shares did much better, today’s high concentration levels are a bullish sign for small caps, says Anders.

Indeed, one of the reasons small caps have lagged the market is not so much that they have performed particularly badly, but that tech firms have done so well. This trend picked up pace in the last few years thanks to the “halo effect of association with artificial intelligence that has driven up the share prices of the Magnificent Seven”, says Mike Coop of Morningstar Wealth. The strong performance of these tech stocks – Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla – has “shifted investors’ attention from smaller companies”, making their growth prospects seem “less attractive”, says Nefeli Neophytou of Arbuthnot Latham.

But just because we’re living through an “exceptional and unusual time” in some ways doesn’t mean that things will automatically revert to “normal”, says Andrew Holliman of Polar Capital. Still, the “law of large numbers” does suggest that the “exceptional operating performance” of the big names will have to come to an end at some point, “not least due to the growing regulatory risks, as well as the need for ever higher levels of capital spending to maintain their position”. There may be no guarantees that the relative position of small and large caps will change, but “the risk/reward balance favours the former”, says Reiner.

Buy quality small caps

Just because smaller caps in general look attractive, that doesn’t, of course, mean that each individual company is worth buying. “As with any given sector, there are some small-cap firms that are attractive and others that you should avoid,” says Holliman. There are “some great small businesses” out there, but investors should beware buying into what he terms “zombie companies” – those with low profitability and especially high levels of debt, which may look cheap now, but “will struggle to survive in the longer run”.

Investors should focus instead on those companies that are not only profitable at the moment, but will have “room and ability to compound their earnings, so that they will be much bigger in five to 10 years’ time”, says Holliman. Smaller companies tend to be more indebted than larger companies, so making sure that the balance sheet is strong, and that debt levels are manageable, is important for identifying likely survivors. Companies that take on too high a level of debt could end up being wiped out by a sudden shift in the economic cycle, or by an unexpected shock.

Quality companies “have always done well in the medium term”, agrees Sherlock. Investors should think about whether the small-cap companies they are considering buying are generating a consistent amount of cash. Barriers to entry that prevent competitors coming in and pushing down margins or stealing business outright are another thing to look out for. In Sherlock’s experience, the most successful small-cap firms are those that “inhabit a niche area that is big enough to be profitable and enjoy opportunities for growth, but too small for the big companies to be bothered with”.

Choose S&P 600, industrials and biotech

The importance of quality in finding successful small caps is one reason why Sherlock uses the S&P SmallCap 600 (S&P 600) as his preferred small-cap index, rather than the Russell 2000. Both indices cover small companies, but the way that the S&P 600 is selected means that the companies in it tend to be on a much firmer foundation than those in the Russell 2000. Around half the firms in the latter index “aren’t making a profit at the moment”, he notes. These companies may benefit more from falling interest rates in the very short run, but those in the S&P 600 have “better long-term prospects as they are in control of their destinies”.

Dan Boardman-Weston of BRI Wealth Management agrees that the S&P 600 is the more attractive small-cap index. In terms of specific sectors, he likes industrials and thinks that some of the smaller US property companies and real estate investment trusts (Reits) are worth looking at, especially those that deal with industrial property (warehouses, workshops and factories), rather than shopping centres or offices. Small technology companies are another area worth investigating.

But by far Boardman-Weston’s favourite part of the small-cap market is biotechnology. Investors do, of course, have to be “highly selective” when they invest in this area as so much depends on the success of individual drugs and treatments. Boardman Weston notes that biotech valuations have “collapsed” over the past two years, with the sector becoming so unfashionable that “many small biotech companies are now trading below the cash on their balance sheets”. He thinks that this is a mistake as artificial intelligence “will help drug discovery” as well as speed up the development of “treatments that are tailored to the individual patient”.

The US small-cap sector is so large that taken together “it would be one of the top-10 markets in the world with a similar market cap to the FTSE”, says Reiner. Investors who do their homework should “be able to find plenty of good firms that can grow through a market cycle”.

How to invest in US small caps

The easiest way to invest in US small-cap shares is through an exchange-traded fund (ETF) that tracks either one of the two major small-cap indices. The iShares S&P SmallCap 600 Ucits ETF Acc (LSE: ISP6) tracks the S&P 600, which includes companies with a median market capitalisation of $1.74 billion, and has a trailing price/earnings (p/e) ratio of 16.8. The ETF has a total expense ratio of 0.3%. Alternatively, the Invesco Russell 2000 Ucits ETF Acc (LSE: RTYS) tracks the Russell 2000 index, which has a median market cap of just under $1 billion and an average p/e (excluding negative earnings) of 18.31. The total expense ratio is 0.25%.

One active fund to consider is the Premier Miton US Smaller Companies fund. It is a genuine small-cap fund, investing in companies with a market cap of between $100 million and $6 billion at the time of purchase. It also has a strong record, with a total return of 61.10% since its inception in March 2018, compared with 55.5% for the Russell 2000. The basic strategy is to “buy attractive companies and hold them for the medium term”, says Alex Knox, who manages the fund with Hugh Grieves. The fund uses screening tools and research to come up with a list of attractive companies, which it then buys when they become cheap enough. Its largest holdings include Carpenter Technology, OneSpaWorld Holdings and H.B. Fuller. The ongoing charge is 1.03%.

Another actively managed fund that looks attractive is the Neuberger Berman US Small Cap Fund Ucits. Run by experienced managers Robert D’Alelio, Brett Reiner and Gregory Spiegel, it focuses on “high quality, small-cap firms in growing markets with conservative balance sheets that are able to generate significant amounts of free cash flow and a good return on capital”, says Reiner. The team also look for “durable advantages over time, such as intellectual property”. Since its inception in July 2011, it’s beaten the Russell 2000, its benchmark, by around 1.2% a year. The ongoing charge is 0.99%.

Reiner is particularly bullish about Kirby (NYSE: KEX), his fund’s third-largest holding. Although at the larger end of the small-cap spectrum, with a market cap of $7.35 billion, the Houston-based company is the largest inland barge-fleet operator in the US. It has “meaningful scale, very strong operational standards and a reputation for a high level of safety”. It has also been able to acquire other companies in the same area, giving it pricing power, especially at a time when the supply of barges is quite tight. It is a prime example of a small company in a “boring industry” that is consistently able to grow its business through economic cycles. Kirby trades at 18.7 times 2025 earnings.

The JPMorgan US Smaller Companies Investment Trust (LSE: JUSC) also looks interesting. It aims to blend growth and value investing, looking for “good-quality companies with good management teams that benefit from barriers to entry and have good relations with suppliers and customers”, says Sven Anders of JPMorgan. The trust has beaten the benchmark Russell 2000 over the past 10 years, has an ongoing charge of 0.93% and trades at just under a 10% discount to its net asset value. One of its top-10 holdings is MSA Safety (NYSE: MSA), with a market cap of $6.8 billion, which makes safety products, such as helmets and fire equipment. MSA has long-standing contracts with various US government agencies who need to replace their equipment regularly to comply with regulations, “giving MSA a good cash flow”, says Anders. It trades at 21.4 times 2025 earnings.

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Investors have been pumping US stocks into their portfolios over the last few months ahead of the US election, with stocks like Tesla, Nvidia, Trump Media and Microsoft faring well.

Overall, the US stock market responded exuberantly to news that Donald Trump had won a second term in the White House. The S&P 500 gained 2.5% on 6 November, the day the election result was announced, and tipped over 6,000 points for the first time in its history over the following days.

Dan Coatsworth, investment analyst at AJ Bell, cites data from the firm’s platform that shows trading volumes on the day were double their average levels and that buy and sell trades tripled their average value.

This tallies with data from the stock market more generally. Trading volumes for the S&P 500 reached 6.3 billion on the day, their highest level since 20 September.

Top 10 most traded US shares on election result day

These are the 10 most-traded US stocks

• Tesla
• Nvidia
• MicroStrategy
• Palantir
• Coinbase
• Amazon
• Trump Media
• Super Micro Computer
• Microsoft
• MARA Holdings

Source: AJ Bell, 6 November 2024. Based on net trades.

Tesla was the most-traded stock, but more people sold it than bought it on AJ Bell’s platform.

“Bears might have taken the view that Trump will be the anti-green leader of the Western world, rolling back elements of the Inflation Reduction Act”, says Coatsworth. The IRA, as it is usually known, was intended to promote clean energy businesses and provides a tax credit to US-based electric vehicle firms. Tesla could lose out on this if Trump were to cut this credit, as he has previously indicated he might.

However, on 12 November Trump confirmed that Tesla’s CEO Elon Musk will be appointed to a role in his administration, heading up the proposed Department of Government Efficiency alongside former Republican presidential candidate Vivek Ramaswamy.

Musk now has “a ring-side seat and has Trump’s ear” which could lead to benefits for Tesla and his other companies. No surprise, then, that Tesla’s share price gained 14.8% on election day; while more AJ Bell customers sold than bought, the market clearly views the outcome as positive for Tesla.

Trump’s bitcoin bounce

Other notable inclusions in the top ten traded stocks on election day are Coinbase (NASDAQ: COIN), MARA Holdings (NASDAQ: MARA) and MicroStrategy (NASDAQ: MSTR).

For investors not familiar with these, all are closely associated with bitcoin – an asset class that Trump was keen to promote his affinity for during the election campaign.

Coinbase is one of the world’s largest cryptocurrency exchanges, while MARA is one of the largest bitcoin miners.

BI software house MicroStrategy was co-founded by Michael Saylor, a prominent bitcoin advocate. In 2020, Saylor began adding bitcoin to MicroStrategy’s balance sheet as a hedge against inflation; now, MicroStrategy is the largest corporate holder of bitcoins.

Consequently, its share price is now correlated with bitcoin’s price moves (though, because it leverages its purchases using debt, MicroStrategy’s moves are often even more extreme than bitcoin’s).

During the campaign, Trump promised to make America ‘the crypto capital of the planet’ and to build a strategic reserve of bitcoin. Bitcoin gained over 9% on 6 November and is today trading at all-time highs of over $90,000.

MicroStrategy gained 12.9% on 6 November and added nearly 40% more since then.

Mixed picture for Nvidia

Nvidia (NASDAQ: NVDA), uncharacteristically, saw one of the more reserved price movements among the most-traded stocks on election day, gaining a comparatively modest 4.1%.

While a Trump presidency is expected to be good news for the tech and AI sector that Nvidia serves, the geopolitical implications of his return to the Oval Office complicate matters.

The risk to the investment case in Nvidia “has grown exponentially after Trump was re-elected”, says Coatsworth. Nvidia is dependent on Taiwan Semiconductor Manufacturing Company (NYSE: TSM) for its chip components, but China has threatened to invade Taiwan on multiple occasions.

Trump, meanwhile, has previously spooked semiconductor stocks by indicating that he would make Taiwan pay for US protection. If Taiwan refuses to do so, Nvidia’s supply chain could come under threat.

Did Trump’s win surprise investors?

Data on the number of shares sold indicates that investors may have been caught off guard by the outcome.

6 November saw two-thirds as many sell trades as buys for US-listed stocks across AJ Bell’s website and app.

“That suggests investors were either spooked by the election result or they felt they had made the wrong trade ahead of the event,” says Coatsworth.

However, while investors using AJ Bell’s platform may have misjudged the result, the gains made by the S&P 500 as a whole suggest that the stock market has welcomed the result.

The US airline industry has had a terrible record of losing money. Its history of bankruptcies and bailouts has been so bad that legendary investor Warren Buffett quipped in 2007 that it might have been better for investors had someone shot the Wright Brothers before they invented the first working aeroplane. Unfortunately, even Buffett would end up learning this the hard way, when his move into airlines in 2016 resulted in having to dump his shares in American, Delta, Southwest and United four years later at a loss weeks after the start of the Covid pandemic. However, things are finally beginning to look up for the sector. 

Three years after restrictions started to be lifted, passenger figures have now fully recovered. The monthly total number of passengers (both domestic and international) boomed this summer, reaching an all-time high that was around 5% higher than in 2019, according to the US Bureau of Transportation. At the same time, consolidation within the industry, as well as supply constraints – such as a shortage of pilots – has reduced competition, allowing airlines to charge more and boost margins. With the US economy now expected to avoid the recession that many were previously predicting, demand is set to increase further.

Is it the right time to invest in United Airlines?

Of all the US airlines, the most promising is United Airlines (Nasdaq: UAL). United recovered from Covid quickly, surpassing its 2019 figures back in 2022 – the same year it returned to profitability. A decision to invest in increasing capacity in 2022 – at a time when many of its rivals were cutting back – has helped it continue to grow, and it is now expanding by around 5%-6% a year. What’s more, United has a clear and well-thought-out strategy for further expansion that involves increasing the total number of flights between the US and Southeast Asia. 

It also plans to serve a greater number of Asian cities, including many that are not currently served by any of its US rivals. This should enable it to benefit from fast growth in the region while also avoiding competition. United’s fundamentals also look attractive. As well as strong revenue growth, it has solid profit margins and a return on capital expenditure of around 10%, showing that it is deploying capital in an efficient manner. However, its past history and the industry’s poor reputation mean that it is still valued at just 5.3 times 2025 earnings. 

If it continues to perform well, it could benefit from greater optimism and a higher valuation. In fact, it looks like investors are already starting to come around. United’s shares have been on a tear over the last few weeks, up by more than half since the start of August, and above their 50-day and 200-day moving averages. I would therefore suggest going long at the current price of $61.80 at £45 per $1. In this case, I would put the stop-loss at $41.80, which would give you a total downside of £900.

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The US election is nearly upon us and the contest between current vice president Kamala Harris and former president Donald Trump is heating up. Election outcomes “tend to have limited long-term impact on the broader economic cycle or overarching market trends”, as Gabriella Macari of Arbuthnot Latham points out, but the result can “heavily influence specific sectors, depending on the victor and their policy stances”. Here we take a look at how the sectors of the US economy will – or won’t – be affected by the election result.

Who will win the 2024 US elections: Trump or Harris?

What is the result likely to be? Picking the winner is difficult because the outcome is not based solely on who wins the national popular vote, but rather on who wins the Electoral College, with votes in the Electoral College based on the results of each state. This system tends to penalise the Democrats, who “waste votes by running up the score in a few states, but come up short in many others”, says expert Charlie Cook, who has been covering US elections since 1984. Another complicating factor is that, although the polls accurately reflected the final vote at the national level in both 2016 and 2020, they were thrown off in a couple of key states by largely Republican-leaning “low-trust” voters who are “generally unwilling to respond to surveys”. Pollsters have tried to correct for these biases, but to the extent that there is now a risk they have “oversampled Trump-like voters”, says Cook.

It “looks more likely than not that Harris will win the national popular vote”, but winning the electoral college, which is what really matters, “is at best a coin flip”. Cook isn’t alone in thinking the election could go either way. The betting markets and statistical mastermind Nate Silver has tended to make Harris a slight favourite, or put the contest at 50/50. There’s also the nightmare scenario of Trump losing the election, but still contesting it, says Paul Jackson of Invesco – this wouldn’t be a surprise considering that Trump would benefit from winning, given his legal woes and that his supporters have lost faith in the system, which means “we could end up with a volatile situation”.

Kamala Harris: good for houses and renewable energy

But with Harris being the slight favourite, it makes sense to start by looking at what sectors would benefit if she wins. One victor would be the house-building industry, says Julian Wheeler of Shard Capital. She has pledged to give every first-time buyer a $25,000 grant towards a deposit for a house, and she has plans for tax changes that would create incentives to build more “starter homes”. The first policy could help boost the margins of housebuilding companies by pushing up prices; the second could genuinely boost supply and hence demand. Taken together, they should increase profitability in the industry, which would help firms at all levels of the supply chain, from those who make building supplies and appliances right down to those mining and quarrying firms who extract the aggregates. The recent uptick in housing permits “may be a sign that the industry is already starting to prepare for the pro-building policies that will follow a Harris victory”.

It also seems clear that Harris will continue the pro-renewable-energy policies of the current administration. In 2022, Joe Biden’s administration passed the Inflation Reduction Act, a “significant chunk” of which was dedicated to wind and solar energy projects, says Richard Wilson of Polar Capital. Such projects are likely to have their funding pulled if Trump wins, which would almost certainly mean they “fall by the wayside”, but they should continue to prosper under Harris.

Overall, Harris, like most Democrats, favours creating incentives to invest in climate change, agrees Ryan McNelley of financial and risk advisory firm Kroll. Harris is therefore “likely to come up with further tax incentives, both for those running renewable energy plants, and those investing in and building them”. Given that “no small part” of the financial sector’s sudden interest in renewable energy over the past few years is down to the introduction of government support, it’s pretty easy to see that this sector will be the big winner from a Harris administration.

Donald Trump: good for fossil fuels, financial stocks and crypto

A victory for Trump, on the other hand, would be much better for those involved in fossil fuels. The sector will benefit in two main ways, says Raheel Siddiqui of investment management firm Neuberger Berman. Trump is highly unlikely to continue Biden’s efforts to take a lead on reducing carbon emissions and clamping down on pollution. Indeed, Trump’s entire energy strategy is based on a deregulatory programme that aims to increase the production of fuels such as oil, gas and even coal, says Siddiqui. Trump has also signalled that he will end Biden’s freeze on approving terminals for the export of liquefied natural gas.

Financial stocks will also be clear winners from a Trump victory, says Wilson. They “did very well under Trump’s previous administration” as there “was a clear move to roll back red tape”, which should continue if he wins a second term. Trump may also extend the generous tax cuts for the sector, such as those he made to real estate investment trusts in 2017, which are currently due to expire next year. This is important, because if the cuts aren’t renewed many Reits will be left with a large tax bill, leaving investors “with blood in their portfolio”.

When it comes to financial services, Trump will be more “business-friendly”, agrees Susan Light, a partner at law firm Katten Muchin Rosenman. He is likely to repeal many of the rules passed over the last four years, and follow the blueprint of the Heritage Foundation, a conservative think tank that has devised “Project 2025”, which aims to “rein in financial service regulators”. (Harris, on the other hand, is likely to keep appointing regulators, such as the current SEC chairman Gary Gensler, who has “led one of the most aggressive rule-making agendas in decades”.)

Finally, Trump is also “likely to be the opposite of Harris when it comes to technology regulation”, says Wilson. Trump would carry out a “broad easing” of the regulatory environment, especially when it comes to financial technology and cryptocurrency – good for the shares of companies in those areas. (By contrast, the regulatory crackdown under Harris “would be even harsher than it currently is under Biden” – she is likely to continue the flurry of antitrust actions that has seen the Department of Justice launch multiple crackdowns against Google’s owner Alphabet, for example.)

Kamala Harris good for bonds, Donald Trump for shares

The election outcome will not only affect individual sectors, but may also have an impact on the wider economic environment. Indeed, Harris and Trump are “complete 180-degree opposites” when it comes to fiscal policy, says Wheeler. Harris has pledged to raise the corporate tax rate from 21% to 28%, for example, while Trump wants to cut it to 15%. In the short run, this difference “is roughly equivalent to 5% of the earnings of the S&P 500” – a Trump win would therefore provide a particularly big boost “for the shares of companies that earn most of their money in the US”.

Any boost to the wider economy provided by Trump’s tax cuts could, however, be outweighed by the fact that they would also expand the federal deficit, says Wheeler. Combined with Trump’s determination to hike tariffs on imports to the US, this would push up prices. This in turn could force the US central bank, the Federal Reserve, to call a halt to rate-cutting and raise interest rates – which would be bad for the market in US government bonds. There is even a good chance, Wheeler adds, that if Trump cuts taxes “while continuing to spend like a drunken sailor” there could be a US version of the mini-meltdown in bonds that accompanied Liz Truss’s brief time in office in Britain.

Wilson is also unimpressed by Trump’s tariff plans. His idea of imposing a 10% minimum charge on all imports into the US is especially “unworkable”, he says, and could lead to “strategically important American industries facing shortages of key raw materials”. Indeed, Trump’s plans are so extreme that he will be forced to tone them down – “you could end up hearing a lot more rhetoric” than seeing actual action, “certainly in the first year” of a Trump term. Yet, even so, firms that import goods from China will surely suffer under a Trump administration, and this will ultimately be bad for the dollar. Alex Crooke, fund manager of The Bankers Investment Trust also points out that “imposing tariffs tends to be zero sum game, with prices rising to offset the charges and other countries imposing their own tariffs”.

Sectors that will do well under either

Despite the differences in policy, there are some sectors that should do well regardless of who wins in November. Technologies that capture the carbon emissions from the least polluting fossil fuels, such as natural gas, will do well whoever wins power, says Richard Lum of VH Global Sustainable Energy Opportunities. Such technologies will help the US reach its goal of getting to net-zero carbon emissions by 2050, while still producing enough cheap power “to keep up with the explosion in demand from data centres”.

The same applies to nuclear power, says Siddiqui. That is one of the few non-fossil energy sources Trump seems to like, and he is planning to cut regulations on the sector. Indeed, successful efforts from both Democrats and Republicans to get nuclear power included in the industries to get subsidies under the Inflation Reduction Act show that it is one of the few industries to enjoy “clear bipartisan support” in an otherwise divided Congress, says Jags Walia of wealth manager Van Lanschot Kempen.

The pharmaceutical industry should also do well whoever gets into the White House. There has been plenty of “election-year rhetoric” about cutting drug prices, as Geoffrey Hsu of the Biotechnology Growth Trust points out, but further action is unlikely, especially if Congress ends up split between the Democrats and Republicans, as most people expect will happen (the Republicans are strong favourites to win the Senate). Even if the Democrats manage to pull off a clean sweep, further radical change is unlikely given that a bill has already been passed allowing Medicare to negotiate prices with drug companies on a range of drugs.

The overall regulatory environment is also “very constructive” for the approval of new drugs, and regulators are “increasingly willing” to give the green light to drugs that deal with unmet needs, even if they have a “less than perfect” dataset. So Hsu is very bullish on the industry. Neither presidential candidate is likely to stop large drug companies from buying smaller companies in order to refill their drug pipelines, either. The industry looks attractive, especially given that it is still trading at “unprecedentedly low valuations”.

How the US election will impact the markets

Just because a president has a friendly (or unfriendly) stance toward a particular industry doesn’t automatically mean that stock performance will follow suit, of course, says Frédérique Carrier of RBC Wealth Management. The US political system is “extremely decentralised”, as Anthony Kingsley of Findlay Park Partners points out, with power split between the White House, Senate and the House of Representatives, and state governments also playing a big role. And presidential policies often end up playing second fiddle to wider market trends. The classic case is that of shares in energy companies – they “did badly under climate-sceptic Trump, but have done well under Biden, despite his green leanings”.

Overall, whoever wins the White House, America will still retain some “incredible competitive advantages”, such as a “liquid capital market, the ability to generate new companies, a strong constitution and abundant energy”, says Kingsley. It will remain an “incredible landscape for investors” and the wider market will navigate any “short-term turbulence” caused by the person at the top.

How to invest around the US election

One investment trust that should do well from either Kamala Harris’s efforts to reduce carbon emissions or Donald Trump’s desire for cheaper energy is VH Global Sustainable Energy Opportunities Plc (LSE: GSEO). This investment trust is exposed to a range of sustainable energy infrastructure and projects – from hydro projects to battery storage and carbon capture – mostly in countries that are members of the EU and OECD club of developed nations. The company trades at a discount of around a third to net assets, has a dividend of around 7.5%, and an annual ongoing charge of 1.5%.

Another energy technology that falls into the “sweet spot” between renewables and fossil fuels is nuclear power. One way to benefit from a resurgence in the industry under either Harris or Trump is to buy shares in those companies mining uranium. The Sprott Uranium Miners ACC (LSE: URNM) exchange-traded fund invests in 38 key uranium miners on the North Shore Sprott Uranium Miners index, which has risen 58% over the past three years. Its largest holding is the Canadian firm Cameco Corp. The ETF has a total expense ratio of 0.8%, which is reasonable for such a specialised fund, and a dividend yield of 0.81%.

Unless the Democrats win both branches of Congress as well as the White House, the biotechnology sector should be relatively insulated from the political fallout of the election – and is so underpriced that even a clean sweep may not be too damaging. One investment trust worth considering is the Biotechnology Growth Trust (LSE: BIOG), run by Geoffrey Hsu and Josh Golomb. It consists of 68 holdings, the largest of which is Amgen. The ongoing charge is 1.2%.

If you think Harris will do well, you might want to consider Builders FirstSource, Inc (NYSE: BLDR), a supplier and manufacturer of building materials and manufactured components to house builders, sub-contractors and consumers. It has already doubled its sales between 2019 and 2023, and still trades at only 16.5 times 2025 earnings. Sven Anders of JPMorgan Asset Management likes Willscot Holdings Corp (Nasdaq: WSC), which specialises in portable offices, used primarily on construction sites. Revenue has tripled between 2018 and 2023, but the stock trades at only 17 times 2025 earnings.

One way to sidestep the worsening Sino-US relations that could occur under Trump is by investing in one of the countries in Southeast Asia, such as Malaysia, that are “increasingly becoming manufacturing hubs for global companies seeking to diversify away from China”, says Nigel Green of deVere Group. The Xtrackers MSCI Malaysia UCITS ETF (LSE: XCS3) tracks the MSCI Malaysia index, with an expense ratio of 0.5%.

Finally, one American fund with a long-term pedigree to get you through any short-term post-election turbulence is Findlay Park American Fund. It is run by Anthony Kingsley, Jon Tredgett and Paul Gannon, and aims to invest in companies that can deliver long-term growth, including many small and medium caps. It has an 83% activity ratio and, since it was established in 1998, has returned an annual average of 12.3% a year, far more than the S&P 500 or Russell 1000. It has ongoing charges of 0.84%.

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