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Trump’s trade policies cast dark shadow over share markets

While equities came out of the blocks like Usain Bolt in January, propelled by strong domestic and international share markets, a White House committed to tariffs and slowing interest rate cuts could still derail investment returns in 2025.
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Superannuation fund trustees would do well to remember that old maxim, one swallow does not make a summer, in the wake of the strong January numbers that saw the median growth fund increase 2.2 per cent.

This strong start, which continues the stellar 2024 performance in which the median fund (between 61 and 80 per cent in growth assets) returned 11.4 per cent, came with a caveat from the research house Chant West – US President Donald Trump’s tariff threats rattled the markets at the end of the month.

Mano Mohankumar, Chant West senior investment research manager, says the January return was driven by strong domestic and international share markets which, in aggregate, account for about 55 per cent of the typical growth option.

  • “In terms of international shares, Europe led the way in January with the US lagging most developed regions. “(Aside from the tariff issue), the US tech sector took a hit on the back of claims that the Chinese start-up, DeepSeek, had trained its generative AI capability to produce results comparable to the market leaders at a fraction of the cost.”

    For the month, developed international shares returned 3.4 per cent and 2.7 per cent in hedged and unhedged terms, respectively.

    What the strong January numbers – and the Trump caveat – highlight is just how difficult 2025 could be for funds to navigate, as Damien Hennessy, Zenith Investment Partners’ head of asset allocation and strategy, explains.

    While not ruling out another strong year for the US equity market – the third successive year – he cautions that it will probably depend on the interplay between two key market drivers.

    “One is the tug of war between earnings and interest rates, and the other is the ability of other parts of the global equity markets to take over some of the heavy lifting from the mega caps that have been driving it.

    “Historically, the third year of a bull market is generally a bit of a grind, and I see no reason why that won’t be the case on this occasion. For me, it’s going to be more about earnings, which is what happened in the US in 2024 (in contrast to Australia where it was all about P/E expansion).”

    He says what must be remembered is that the US enjoyed strong growth, lower inflation and rate cuts in 2024 – an economic scenario he is far less optimistic about for 2025.

    “Growth will be okay, but I don’t think we’ll get much in the way of lower inflation, and interest rate cuts are going to be quite limited, so I’m less positive about those drivers of a broader market rally.

    “Interest rates were a key catalyst for markets doing well last year. So, not having as many rate cuts this year is one of the biggest risks. In the past three months, 15 central banks have cut rates, while only two (Japan and Brazil) have lifted them.”

    Typically, with a lot of rate cuts in the market, it leads to stronger economic growth. But as growth picks up, there is less need to cut rates, with the Fed and the European Central Bank already contemplating whether they need to keep cutting rates to the same extent – a negative for equities.

    If the direction of monetary policy in 2025 remains an imponderable, so too does the Trump presidency.

    For Hennessy, it will require investors to cut through the noise – “the daily announcements we are being bombarded with” – and attempt to work out what is the end game.

    Another issue is the fact that investors’ initial bullish response to Trump’s election win was based on his promise of being pro-growth, implementing tax cuts and deregulation, and this has been largely factored in by the markets.

    Now investors have to come to terms with a White House that is wedded to increasing tariffs that are essentially a tax on consumers and business.

    “If Trump proceeds down this path, the overall impact is likely to be lower growth and slightly higher inflation,” says Hennessy. “But it’s our view that Trump is using tariff policy more as a negotiating tool to achieve something else such as getting Europe to increase defence spending or the war on drugs in the case of Mexico.

    “But if Trump is genuine about implementing tariffs across a lot of the economies and sectors, then there is a genuine downside risk to growth and the upside risk to inflation. As I said, it’s not our base case, but it’s something that must be considered.”

    Nicholas Way

    Nicholas Way is editor of Investor Strategy News and has covered business, retirement, politics, human resources and personal investment over a 50-year career.




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