Market turbulence, portfolio resilience

Market turbulence – inauguration jitters

In the first quarter of 2025, we warned of fat tails in markets – i.e. more extremes – driven by policymakers. Since President Trump’s inauguration, we’ve seen that materialise. Political noise continues to dominate headlines. Tariff uncertainty and shifting trade allegiances have begun to impact markets.

The challenge with tariffs is understanding the timing, the magnitude, and any retaliatory actions. The US’s announcements, pauses and use of tariffs as a wider negotiation tool only add to the uncertainty.

Compounding this is the sheer volume of legislation from Trump in his first months in office. The market not only has to decipher the rhetoric of a tariff-induced “trade war” but also assess the pipeline of legislation.

Still, political events may grab headlines but they rarely dictate long-term market outcomes. One moment we hear talk of new tariffs, the next there are negotiations to roll them back. This whiplash can erode business confidence and spook investors. But the key is not overreacting to each twist and turn. As Joe Wiggins, our investment research director, says: “Markets are noisy, but successful investing is about focusing on what matters and ignoring what doesn’t.”

Politics can make markets nervous, but it’s usually a short-term disturbance. Companies adjust supply chains, consumers find alternatives, and economies re-balance.

That’s not to say political actions don’t matter. Politics shapes policy, which in turn can affect corporate earnings, taxes and regulations. And adding to today’s political backdrop are ongoing economic concerns. Global markets are also grappling with inflation that’s come down from its peak but remains sticky. Central banks are walking a tightrope, balancing rate hikes with the need to support growth.

Our overall view on the economy, although still positive, has deteriorated. That said, while there are downside risks, there are also upside risks from the German financial package or potential US corporate tax cuts. Markets have a way of looking through the rhetoric to focus on fundamentals, which remain relatively healthy.

Navigating behavioural pitfalls

Volatility can test even the most seasoned investors. It’s natural to feel uneasy when markets swing, but the worst thing we can do is make emotional decisions. Evidence shows this is when investors often make their biggest mistakes.

In this current environment, reassessing whether your portfolio is overly concentrated in areas of the market that are expensive is of course sensible but this is something we should be continuously doing. Diversification provides resilience. And regular rebalancing keeps us disciplined, leading us to buy low and sell high – even when it feels counterintuitive.

When faced with heightened volatility, remember your long-term destination. What are the goals behind your investments – a comfortable retirement, your child’s education fund, a legacy for the next generation? These goals are often multi-year – even multi-decade – in nature. So measure success over those timeframes, not by what happens in a single quarter or year.

Joe Wiggins said it best: “Successful long-term investing is founded on a diversified portfolio spread across asset classes and geographies tailored to our objectives. If we get this right, we’ll be well-positioned to meet our goals irrespective of short-term events.”

Keeping our eyes on the horizon

Wrapping up, I want to leave you with this thought: uncertainty is nothing new. The latest bouts of volatility show how important it is to have a resilient portfolio and ensure you are aware of any obvious concentration risks. Markets have faced countless challenges before – and they’ve always recovered.

By staying diversified, disciplined, and focused on the long term, we can build resilient portfolios well-positioned to capture the opportunities ahead.

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.