Reflecting on the past month, Jeremy Richardson discusses the two scenarios that appear to have replaced tariff uncertainty in the minds of Global Equity investors.
Highlights:
Global equity markets have recovered significantly since the initial sell-offs following the announcement of the Rose Garden tariffs, despite ongoing uncertainties of trade negotiations.
"Goldilocks" or “stagflation” scenarios are weighing on investors’ minds.
Economic data is being closely monitored, with hard data providing a reliable but lagging indicator of past performance and soft data offering more timely but less definitive insights.
The RBC Global Equity team remains focused on identifying strong businesses with attractive valuations which look better positioned to navigate macroeconomic uncertainties.
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Hello, this is Jeremy Richardson from the RBC Global Equity team here with another update. Well global equity markets have recovered from the sell offs that we saw immediately after the unveiling of the Rose Garden tariffs in early April.
Quite a remarkable recovery when you consider that we still don't have perfect visibility about what the landing zone for tariffs is going to be, moratoriums have been announced, we know that there are a lot of discussions in play, but we've had comparatively few deals agreed yet. This is creating a level of uncertainty for investors about where we go from here, given that we've had such a very strong recovery.
There are two potential scenarios, I think, that are weighing on investors’ minds. On the one hand, what we might call a sort of Goldilocks kind of scenario where diminishing amounts of trade uncertainty encourages companies and consumers to spend money and to invest, creating quite a positive environment for corporate profitability.
The alternative is a little less positive, which is around stagflation. And this, really, is centred around the impact upon inflation that tariffs may have and the possibility that that leads to higher interest rates for longer. Together with the fact that maybe businesses and consumers respond to that uncertainty by, you know, keeping their dollars in their wallets and not spending so much.
And that is going to be a less constructive environment for investors and for corporate profitability. This is leading to a focus on economic data at the moment. And there are two types of economic data that I think are particularly relevant here. Hard data and soft. And the hard data is probably the most robust because it comes from statistical techniques.
And, you know, you can only rely upon it because it's sort of, based upon, rigorous analysis. But that rigorous analysis takes time to prepare. So it's probably a good indicator of where you've been rather than where you are or where you're going to. The soft data on the other hand, is a little bit more timely things like surveys, for example, but can be more ambiguous.
And that's kind of where we are at the moment, because the hard data is indicating that, well, we haven't slipped into recession yet. But the soft data is not as convincing as everybody would quite like. So we're in this sort of, bit of a no man's land in terms of where we go from here.
Our attitude, our response to this is, is really to sort of not try and time the markets we’ll leave the, the economist and the strategies to do their thing. We remain very much focused upon identifying great businesses at attractive valuations because in our view, irrespective of the global macroeconomic outlook, great businesses will be much better positioned to be able to manage their way through whatever uncertainties, that macroeconomic outlook provides.
I hope that's been of interest to you, and I look forward to catching up again soon.