Once again, U.S. trade policy moved to the center of attention last month. The U.S. Supreme Court declared the tariff measures announced and implemented since April of last year unconstitutional, thereby setting clear limits on the extensive use of presidential emergency powers. The U.S. president responded with sharp criticism of the justices and promptly announced new, time‑limited tariffs based on alternative legal foundations. Strategically, however, the ruling represents only a limited setback for the White House: the Court merely found that the emergency statute does not justify tariffs, while numerous other presidential authorities remain untouched. Accordingly, many countries are likely to maintain their existing trade agreements, as the U.S. still possesses significant leverage. Nevertheless, the EU has suspended the ratification of its agreement with the U.S. for the time being, citing the growing “tariff chaos.” While EU member states have not yet defined their final response, political pressure on Brussels is mounting. Meanwhile, industry associations in the U.S. are calling for a swift and uncomplicated refund of the tariff payments made. All in all, Corporate America is estimated to have borne between USD 133 billion and USD 200 billion in tariffs – costs which studies show were largely passed on to U.S. companies and consumers. A Global Trade Alert analysis also indicates that the new global 15% tariffs ironically benefit countries Washington had previously criticized most harshly: Brazil and China are seeing significantly lower average tariff rates, while traditional U.S. allies such as the United Kingdom, the EU, and Japan face higher burdens. As a result, Beijing is increasingly able to position itself as a stable, multilateral actor and bind other countries – willingly or otherwise – more closely to itself, even though many governments remain skeptical of China’s geopolitical motives. Thus, China is likely to gain influence less because of its inherent attractiveness, and more due to the U.S. turning away from previously held principles.
Growing concerns about AI‑driven disruption are pushing investors out of software‑heavy sectors and into more capital‑intensive areas of the market: while software companies have lost more than a trillion dollars in market value within weeks, so‑called “halo” stocks – companies with large physical asset bases and low technological obsolescence – have clearly benefited from this rotation. In addition to energy and utility stocks, heavy industries, semiconductor suppliers, and commodity companies have also profited. This likely explains a substantial portion of the recent outperformance of European and particularly Japanese equities relative to the technology‑heavy U.S. stock market. Emerging‑market equities – driven mainly by South Korea and Taiwan – also delivered exceptionally strong performance. Given the current environment, we consider these market movements to be well‑founded and have been positioned accordingly for some time.
The latest minutes of the Federal Reserve meeting show that members of the Federal Open Market Committee see virtually no remaining risks to the labor market and view its recent stabilization as a positive development. At the same time, they note that tariffs and demand‑side effects may continue to weigh on price developments. Accordingly, despite declining inflation, Fed officials expect only a slow and uneven convergence toward the 2% inflation target. What appears far more significant to us, however, is that soaring U.S. government debt and growing doubts among professional investors about Washington’s fiscal sustainability are fueling concerns that the U.S. may eventually struggle to meet its global financial obligations with its usual reliability. This could lead investors to reassess the hierarchy of safe havens and increasingly turn to the Swiss franc, Japanese yen, gold, or even German Bunds. Notably, according to State Street, not only foreign investors but also an increasing number of U.S. investors are avoiding the dollar. Given Europe’s comparatively robust balance‑sheet structure relative to the more dynamic but increasingly risk‑laden U.S. fiscal situation, it appears logical to assume bond risks primarily in Europe. Commodity markets have stabilized noticeably after the sell‑off at the end of January, with oil prices rising sharply again following the recent geopolitical events in Iran.
A little more than thirty years ago, economists Eugene Fama and Kenneth French incorporated the so‑called small‑cap premium into their three‑factor model. At first glance, the underlying idea seems intuitive: smaller companies – so the assumption goes – have substantially greater growth potential than established large‑cap corporations. Empirically, however, this concept has found little support over the past three decades. Since 1992, it has not been small caps but rather large caps that have delivered higher returns in the U.S. Deriving a kind of “large‑cap premium” from this, however, would be misguided. What truly matters is evaluating expected returns in relation to the associated risks and deriving a meaningful, well‑thought‑out asset allocation. Against this backdrop, we continue to rely on robust diversification in our portfolios and focus on investments with low correlation to equity and bond markets. We see risks particularly in the high valuations of certain equity market segments. We also continue to monitor geopolitical developments closely, especially as tensions between Israel, the U.S., and Iran have escalated further. A major unknown remains U.S. trade policy, which – at least for now – appears to be guided by a “trial and error” approach and may therefore continue to produce both positive and negative surprises. Overall, we remain cautiously optimistic and maintain a slight overweight in equities and a home bias. At the same time, we have recently adjusted the strikes of our hedging strategies upward, positioning ourselves well for potential market pullbacks.