If a week is always a long time in markets, the two months since President Trump’s second inauguration have seemed near to an eternity.
The pace of change under the returned president has been breathtaking. Seemingly every day, a new policy announcement has rocked both the political establishment and markets. Given just how much the administration has done in that time, we thought it would be worth taking a moment to reflect and remind ourselves of how US markets have fared in 2025 so far.
Tariffs, baby, tariffs
In terms of their impact on markets, President Trump’s tariffs are surely the most notable feature of his second presidency so far. On February 10, a presidential proclamation announced tariffs on all imports of steel and aluminium. These tariffs would have a significant effect on both Canada, the US’s largest supplier, and the European Union, which both announced counter tariffs.
The immediate impact of these tariffs was felt by the industries expected to be most affected, such as automobile and appliance companies. Both have seen a fall in share prices. However, a decline in economic sentiment more widely – such as consumers being depressed by repeated negative headlines – could impact other industries, like airlines. Indeed, the sector has seen a revision in earnings forecasts already.
The long run real impact of the tariffs remains unclear though.
The less Magnificent Seven
Elsewhere in the first quarter, we saw the (in some corners much anticipated) stutter in the rapid ascent of the Magnificent Seven. We say ‘elsewhere’ because the trade rhetoric had, at worst, a secondary impact on them.
Instead, Deepseek’s claims surrounding the development of its own AI model called their escalating share prices into question. Deepseek claimed that its model used less sophisticated chips – and fewer of them. It’s worth noting that a lot of the market had already started cooling on the Magnificent Seven, as seen by several individual days of volatility in 2024. For both valuation and yield reasons, we hold just two of the set in our portfolio.
Nonetheless, the apparent end of the Mag 7’s run does mark a new chapter for US markets.
Same as it ever was?
As some of our colleagues have already pointed out, a drawdown (more than 10% fall) in the US market isn’t exactly unprecedented. Over the past four decades, almost half of these years have featured such a fall in the US market. While no future is guaranteed, historically, the market has recovered – and thrown up new opportunities in the process.
However, we are not there yet. In our next letter, we will outline how we are investing in a market like this…
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