Reflecting on the past month, Jeremy Richardson discusses how different markets are reacting to newspaper headlines.
Market rotation has accelerated through the first quarter of 2025, led by differences in opinion and uncertainty from both sides of the Atlantic.
Fundamental bottom-up investors require two things to be able to capitalize on changes such as policy announcements: a degree of foresight in being able to predict these policy announcements and an ability to capitalize upon them.
Sustainable quality companies continue to be attractively valued compared to the broader market.
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Transcription
Jeremy Richardson
Hello, this is Jeremy Richardson from the RBC Global Equity team, here with another update.
Well, I've been on my travels over the last week and a half meeting with clients and investors in both North America and continental Europe – and it's funny how those two different sets of investors can look at the same newspaper headlines and respond with different sensitivities.
In North America the feeling I get from investors is around concern about the impact of U.S. trade tariffs and what that could do to supply chains and the outlook for inflation, but also concerns about whether or not the US economy will see a business slowdown as a result of these uncertainties.
In contrast, the mood from investors in Europe feels, seems, as though it's much more focused around defence and security. With some signs of optimism I should say that national governments, in particular in Germany, their willingness to borrow money to re-arm, may have a positive stimulative effect on the economy. And this difference of opinion is leading to rotation within equity markets, a rotation which appears to have accelerated as we've gone through, the first quarter of 2025.
This rotation is essentially, more uncertainty and concern on the part of North American investors, moving capital towards signs of perhaps green shoots and, more optimism, in Europe. But one of the things that strikes us, within the Global Equity team is just how quickly this rotation has occurred. You know, this has been incredibly rapid and driven, I would say more by newspaper headlines and anticipation than actual fundamentals themselves, and I think for fundamental bottom-up investors like ourselves, this does create challenges, because the opportunity for investors to be able to capitalize on this requires two things: A degree of foresight in being able to predict these policy announcements; and then secondly, an ability to be able to position yourself, in time to be able to capitalize upon them.
Now, you know, that's quite a challenging demand, we would argue. And so actually better and rather than trying to play that game and risk getting both of those two things wrong, better to neutralize those types of decisions, we would argue, and instead have a balanced portfolio across, the full global opportunity set, which would hopefully then sort of neutralize volatility from these more perhaps unforecastable types of variables, that does therefore allow investors to focus on the bottom up approach and focusing on companies.
And as we sort of sit down and share this video, we are at quite an interesting moment, I feel, because we're about to get the Q1 earnings season at the time of recording, and this Q1 earnings season may very well see some updates from companies as they consider their prospects, for the balance of this calendar year and our sense is that the mood within investors at the moment is more a little bit, sort of, cautious in terms of the types of news flow that they will hear, probably because they're also feeling cautious about some of the macroeconomic changes.
Well, I guess the more optimistic stance would be that, you know, the market doesn't like uncertainty and just the delivery through the passage of time of more certainty around tariffs and around policy announcements and positioning around things like defence, will enable investors to get a better assessment of the earnings agenda for the balance of 2025, and that should be supportive for the equity market, in general.
And so, this is where we're spending our time as investors, encouraged not only by the amount of opportunity that we're seeing from the bottom-up point of view, but also relative valuations, where in our opinion, you know, what we call sustainable quality companies continue to be attractively valued compared to the broader market.
I hope that's been of interest, and I look forward to catching up with you again soon.