It’s understandable that the announcement on the 2nd of April that the US will apply heavy trade tariffs on international partners may be causing uncertainty for investors.
Investment Director Tom Stevenson tackles some key investor questions to give a snapshot of investors’ mindset right now.
Is the US heading for a recession?
According to forecasts from economists and asset managers, the likelihood of recession in the US - and possibly globally - has jumped since the unveiling of trade tariffs by the United States. Fidelity’s own estimate of the chances of recession in the US have increased to 40%.
That still means there’s a good chance the world’s largest economy avoids recession, but clearly much depends on the willingness of the US to deliver tariffs as promised. If they do arrive then the consensus among economists is that they will raise prices in the short term and harm growth in the longer term.
Should I sell out of the US given the fall in markets recently?
Sadly, it’s not possible to know whether the US or any other market will continue to fall or not. As at 9 April 2025, markets have recovered a small amount of the losses since the tariff announcement and investors seem ready to pounce on any good news to drive prices higher.
What makes things hard is that the stated aims of the White House seem contradictory. On the one hand it wants to bring back manufacturing jobs to the US, but on the other it wants to use tariffs to negotiate better trading terms for exporters. Incentivising companies to open factories in the US require tariffs remain in place for the long term, yet negotiating better trade terms would presumably mean tariffs could be removed in exchange for better concessions from other nations.
If you’re sitting on losses from US shares, bear in mind that selling now means locking in a loss. The US is still likely to be a big part of your portfolio in the long run, even if its prospects have taken a hit in the past week.
What percentage of a portfolio should be put into safer assets such as gold and bonds to offset the present volatility of shares?
In times like these, whatever percentage of safer assets you hold probably doesn’t feel like enough. Of course, redressing the balance now means selling shares after a loss and buying diversifiers like gold and bonds after a gain.
The fundamental case for a diverse portfolio has not changed, it’s just that many of us have allowed our portfolios to drift more towards shares over the years. Stock markets have done well and bonds have disappointed so it’s been easy to allow money to move away from the safer asset.
Bonds have, of course, shown their value in the recent sell-off. If you have a long timeline then there is still a strong case for holding a majority of your money in the stock market where growth prospects are highest. But that can still leave space for a healthy allocation to bonds
Gold is more volatile but has a record of offsetting share losses in periods of extreme market stress. An allocation at the margin of portfolios is common.
The exception to this may be retirement savings where many will hold a high percentage in shares because they know they won’t touch their money for many years or even decades and can therefore give losses time to recover.
What are good defensive investments?
Beyond the diversifiers to shares we have mentioned above, certain parts of the stock market are sought after for their defensive qualities.
Some industries are less vulnerable to economic slowdowns than others. Consumer staples companies - those selling us toothpaste, toilet roll and tomato ketchup, for example - should be able to rely on their sales persisting even if growth slows down. That can also apply for utilities, healthcare, packaging, and tobacco.
Companies in these areas are often high dividend payers as well, offering some ballast to returns.
Should I make changes to my investments incrementally or all at once?
It’s impossible to know whether phasing changes in your portfolio will pay off financially. If you move money in one go and markets rise in your favour, that will be the most financial beneficial way to do it - but you can’t know in advance if that will happen.
By making changes in stages - and ideally doing it in an automated way - you may narrow the range of possible outcomes and reduce the chance that you’ll make a hasty decision that you later regret.
