Importance Score: 72 / 100 š“
The financial markets are experiencing a notable shift, and a new sentiment is emerging on Wall Street: “Sell America.” This phrase reflects growing unease about the country’s appeal to global investors.
Changing Sentiments on Wall Street
For a nation that prides itself on being the heart of capitalism, with a strong culture of individual stock ownership, this notion represents a significant departure.
Trump’s Influence on Market Anxiety
More than just trade barriers, the recent market turbulence was triggered by former President Donald Trump’s threats concerning Jerome Powell, the head of the US central bank, the Federal Reserve.
While the often-unpredictable president later softened his stance, providing some respite to stock values, market apprehension about future actions or pronouncements persists.
Largely attributed to Trump’s behavior, coupled with escalating worries about his intent to upend the established global economic structure, the Dow Jones index has declined by approximately 5 percent year-to-date.
The S&P 500 has decreased by 7 percent, and the technology-heavy Nasdaq composite is down 12 percent.
The Fed’s Independence Under Scrutiny
Trump’s criticism of Powell rattled markets because the Federal Reserve, similar to the Bank of England, operates independently from governmental intervention.
This independence ensures that interest rate decisions are based on economic realities, not partisan politics.
Consequently, investors reacted negatively to the President’s candid remarks that the Fed chair’s “termination cannot come fast enough” and that he is a “major loser” for resisting interest rate reductions.
This episode is merely the latest in a series. The “Sell America” philosophy suggests increasing concern that the US is diminishing as an attractive destination for global investors, including those from the UK.
While it might be early to draw definitive conclusions, and the US has demonstrated resilience in the past, the volatility on Wall Street serves as a reminder to re-evaluate investment strategies.
Broader Economic Concerns
Challenges extend beyond equities. The dollar, impacted by Trump’s criticism of Powell, has experienced substantial declines recently.
Traditionally, the dollar is considered a safe haven during uncertain times, but this period has witnessed a shift towards alternative safe assets such as gold, the Japanese yen, and the Swiss franc.
Recently, the International Monetary Fund (IMF) highlighted the potential detrimental effects of Trump’s tariffs and policies on the US economy, revising its growth forecast from 2.7 percent to 1.8 percent.
Even stalwart supporters of US assets are reassessing their positions. This includes figures like Alain Bokobza, head of asset allocation at Societe General bank, who has advised investors to decrease their exposure to American markets and the dollar.
The Bond Market’s Turmoil
US Treasury bonds, essentially government-issued IOUs, are commonly viewed as a secure investment, based on the assumption that the US government will fulfill its debt obligations.
Nevertheless, even the bond market has been affected by recent instability. There are worries among traders about the potential for foreign investors, who hold roughly 30 percent of America’s $30 trillion in debt, to withdraw from Treasury securities.
Stuart Clark from Quilter emphasized that simply discussing actions capable of undermining the Fedās autonomy, such as dismissing its chairman, can produce substantial adverse effects on bond markets.
According to Clark, this situation is, “similar to the impact of the Liz Trussā mini-budget on the UK gilt market in 2022 – but with far greater repercussions for the global financial system due to the size and significance of the US treasury market.”
For UK-based investors, considerable drops in US shares have been intensified by the devaluation of the dollar. As Jason Hollands from Bestinvest highlights, a 16 percent fall in the S&P 500 since February equates to a 21 percent decrease in sterling terms.
So, is it time to “Sell America?” If so, where should you invest your money? Are there potential chances to acquire American equities at lower prices?
Here’s essential advice for navigating the current market.
Investment Strategies: An Action Plan
Those who can adopt a long-term view should avoid panic selling, either of US equities or any others, since this would solidify losses.
As Ian Lance, manager of the Temple Bar investment trust, observes, “When stock markets are as volatile as they have been so far in April, there is a natural human instinct to run for cover.”
Lance further explains: “Each uncertain period brings its own challenges, but historically, reacting to this instinct has typically resulted in lower returns than had you done nothing.”
Instead, now is a good time for diversificationāspreading investments across a range of assetsāand accumulating cash to enhance future flexibility.
Diversifying Beyond US Tech Stocks
For many who hold global funds, significant exposure to US technology firms is common. The recent disruption has severely impacted the “Magnificent Seven” tech companiesāAlphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla.
Looking beyond these companies and considering the potential of American enterprises in other sectors is prudent. Continue to bet on America, but consider diversifying your bets.
Stephen Yiu, manager of the Blue Whale Growth fund, has divested from Microsoft and Meta, anticipating adverse effects from a global economic slowdown.
However, he maintains his investment in semiconductor manufacturer Nvidia, believing the company is prepared to capitalize on the artificial intelligence (AI) revolution.
He is also broadening his assessment of US-based companies.
Yiu elaborates: “Itās worth looking at companies that are American but play a vital role globally such as Mastercard and Visa which dominate payment processing. Netflix is the leading name in streaming services worldwide with more than 300 million subscribers.”
Yiu also advises: “Donāt exaggerate the impact of tariffs. Shares in the mammoth US retailer Walmart have risen by 8 per cent over the past month because although about one third of its goods come from China, the rest are made in the US.”
Tesla shares have plummeted by 42 percent this year, as sales have declined due to the political activities of its CEO, Elon Musk.
Musk has promised to reduce his involvement in these areas, but buying Tesla shares should only be considered by those with a strong belief in his leadership.
One established strategy when stocks fall is to identify undervalued, quality shares.
But, Yiu cautions that bargain-hunting in the US market right now could be dangerous. “Such are the uncertainties, that the investible opportunity set has shrunk.”
The Allure of Cash and Gold
For those feeling too apprehensive to invest in equities, accumulating cash reserves allows capital deployment when markets stabilize.
Another strategy is to explore safe-haven assets like gold, which has gained approximately 30 percent since January, reaching a record price of $3,500 per ounce. Goldman Sachs predicts it could potentially reach $4,000 by the end of the year.
A gleaming gold bar may offer reassurance, but ensuring secure storage can be expensive.
A more accessible option is a fund such as iShares Physical Gold, which holds the precious metal, or BlackRock Gold & General, which invests in gold mining companies like Barrick Gold and Newmont.
Gold’s rise has surprised some who thought cryptocurrencies would emerge as the preferred safe haven. Bitcoin’s price exceeded $100,000 in December, but anticipated White House support for crypto has not yet materialized.
Looking East for Opportunities
Despite facing some of the highest tariffs, the Far East is attracting some of the capital divested from the US, as noted by Richard Hunter of Interactive Investor.
The Hong Kong Hang Seng index and the Shanghai Composite have both grown this year.
Hunter states, “China is certainly not taking the tariff threats lying down. There is the possibility of robust defiance and additional government stimulus for companies that are affected.”
More capital might flow into this region if the proposed 145 percent tariff on China is substantially reduced, as some in the Trump camp have suggested.
For those looking at an Asian recovery play, Jason Hollands recommends the Templeton Emerging Market investment trust.
Exploring Japanese and European Markets
The Japanese market has shown volatility this year, with the Nikkei index dropping by 12 percent. Japan is subject to an overall tariff of 24 percent (temporarily reduced to 10 percent), plus a 24 percent tariff on cars and steel.
Japanese policymakers will want to avoid harming its strategic alliances with Washington or its business partnerships with Beijing.
Despite the difficult balancing act, investing in Japan could yield diversity. Hollands’s fund of choice is M&G Japan.
European markets, long out of favor, may be regaining appeal. Larry Fink, chief executive of BlackRock, has mentioned the “over-allocation” of portfolios to the US, and recommended a shift to Europe.
To provide tariff context, the US accounts for about 25 percent of the global economy, meaning many European firms are domestically oriented.
Lance highlights the German governmentās decision to increase defense spending, which he suggests could “stimulus to the European economy in the order of ā¬800 billion.”
Interactive Investorās best buy European fund is BlackRock Continental Europe, which has positions in major companies such as Ferrari, Hermes, and Schneider Electric.
Investing Closer to Home: Buy British
Incorporating UK investments into a defensive strategy is another prudent approach. The FTSE 100 has risen by 2 percent this year, as international investors take fresh look at British companies that are often undervalued.
Consider allocating funds to a fund like Fidelity Index, which tracks the FTSE All-Share index. The British economy’s reliance on the service industry should mean that tariffs cause relatively less impact.
In recent years, many individual investors have focused on America and its tech sectorās impressive returns. Although ending this relationship completely is unnecessary, smart investors will be looking at many options as trade conflicts escalate.