The recent downturn in global markets, particularly in the US and European Equity markets, has understandably raised concerns. Factors such as newly imposed tariffs by the United States and corresponding measures from Mexico, Canada, and China, alongside geopolitical tensions in Europe over the Ukraine conflict, contribute to the current volatility. While these developments are significant, it’s important to recognise that markets have encountered similar challenges in the past and have demonstrated resilience over time.​

Historical Context: The 2018–2019 Trade Dispute

During President Trump’s first term, the U.S. engaged in a notable trade dispute with China, characterised by implementing tariffs on a range of goods. This period saw increased market volatility, with the Dow Jones Industrial Average experiencing significant fluctuations in response to tariff announcements. For instance, in March 2018, the Dow dropped 724 points (approximately 2.9%) following the announcement of tariffs, reflecting investor concerns over a potential trade war.

Despite these challenges, the market demonstrated remarkable resilience. After a period of adjustment, the S&P 500 rebounded, achieving new highs in subsequent years. This recovery underscores the market’s capacity to adapt and grow amid significant policy shifts and global economic tensions. ​

While equities were volatile, other asset classes provided diversification benefits:

• Corporate bonds saw some price fluctuations, with investors demanding slightly higher returns due to market uncertainty.
• UK Gilts & US Government Bonds: Acted as defensive assets, delivering modest gains during equity downturns.
• Property Markets: Faced fluctuations, reflecting broader economic conditions and investor sentiment.

This reinforces why a diversified portfolio remains key during uncertain times.

Parallels to the Current Situation

The present scenario shares similarities with the past, particularly concerning the implementation of tariffs and the ensuing market reactions. While the specific geopolitical and economic contexts differ, the fundamental market dynamics exhibit comparable patterns of initial volatility followed by periods of stabilization and growth.​

The Case for a Steady Investment Approach

Historical evidence suggests that maintaining a disciplined and long-term investment strategy during periods of market turbulence can be beneficial. Reacting impulsively to short-term market movements often leads to suboptimal outcomes. By staying the course and adhering to a well-considered investment plan, investors position themselves to capitalize on eventual market recoveries.​

One of the most significant risks to investors is emotional decision-making fueled by exaggerated media rhetoric. The term “trade war” is an example of how the media can inflame concerns unnecessarily.

In reality, what we are experiencing is a trade dispute at worst—a shift in global trading terms, not an all-out economic war. Markets adjust, new supply chains form, and businesses continue operating under different conditions.

This is why reacting based on headlines rather than fundamentals can be costly. Those who sold investments during the 2018-2019 dispute missed out on the subsequent strong market recovery.

While it may feel counterintuitive, making no changes is often the best course of action.

• Market recoveries can happen faster than you expect. If you had exited the market during the last trade dispute, you would have missed substantial gains over the next three years.
• Emotional decisions lead to poor outcomes; selling during downturns often locks in losses and prevents you from benefiting when markets rebound.
• Portfolios are built for the long term, and your investments are designed to withstand volatility. Adjustments should be made for strategic reasons, not short-term panic.

By staying invested, you benefit from market rebounds, compounding, and long-term growth trends.

Conclusion

While current market conditions are challenging, it’s crucial to remember that volatility is an inherent aspect of investing. The resilience demonstrated by markets in the past, particularly during the 2018–2019 trade dispute, provides a reassuring precedent. We remain committed to monitoring developments closely and managing your investments with a focus on long-term growth and stability.​

The information provided in this Q1 2024 market update is for informational purposes only and should not be considered personalised investment advice. Investing in financial markets involves inherent risks, and past performance does not indicate future results. The content does not constitute a recommendation or endorsement of specific investment decisions. Please speak to your adviser for personalised advice.