The recent flurry of executive orders, tariff salvos, and high-profile news conferences appears to be creating significant headwinds for US consumer and small business confidence. What was once the envy of the developed world, the US economy is now exhibiting concerning signs of vulnerability as markets and business owners anxiously await clarity on tax policy and regulatory relief.
This whirlwind of policy changes has created an atmosphere of uncertainty that typically dampens investment and spending. Small businesses, which form the backbone of the American economy, seem particularly hesitant to expand operations or increase hiring amid the current climate. Meanwhile, consumers are becoming more cautious with discretionary spending as they try to gauge how these economic shifts might affect their financial futures.
The question remains whether these are temporary growing pains or indicators of a more prolonged economic adjustment. As the administration continues to reshape policy, market participants are closely watching for signs that might restore the confidence that previously made the US economy a global standout.
Across the Atlantic, the diplomatic efforts to end the three-year conflict in Ukraine have become the focal point for investors. European equities have experienced a notable rally as markets anticipate a potential breakthrough in peace negotiations. However, despite this optimism, substantial challenges remain in finalising an agreement that all parties can accept. Several competing peace proposals have emerged, each with different frameworks for territorial considerations, security guarantees, and economic reconstruction. While the prospect of resolution has bolstered market sentiment across the continent, the complex nature of these negotiations suggests that final agreement on crucial details may still prove challenging.
US equites were down 2.5% in sterling terms in February despite robust fourth quarter earnings. US large capitalisation stocks delivered earnings growth of 18.2% year-on-year—the highest since Q4 2021.Ten of eleven sectors reported year-over-year earnings expansion. For the full year 2025, analysts project earnings growth of 12% suggesting continued corporate performance despite macroeconomic and geopolitical factors.
Treasury yields have declined from January peaks, with the benchmark 10-year US yield reaching 4.2% from 4.8% in January. Investors now anticipate at least two 25-basis-point rate cuts by the Federal Reserve by year-end, though opinions vary on this timeline given inflation expectations and the Fed's data-dependent approach. In Europe, investors expect both the Bank of England and the European Central Bank to cut policy rates 3-4 times in 2025.
We continue to monitor incoming economic data and are ready to act if needed. While we are encouraged by the strength of corporate earnings, continued growth requires a robust economy. The year-to-date rally in bonds and European equities, is a reminder of the importance of diversification when building portfolios. We continue to favour large high-quality companies within equity allocations and maintain exposure to neutral duration government debt for low and balanced risk clients as we try to protect portfolios from the worst consequences of weakening growth.