Greens shoots for global equity markets despite Trump 2.0 and a slowing US economy

Stephen Miller

Trump 2.0 remains the focal point as markets head into the second half of 2025. There is greater clarity around the implication of the US administration’s policies on markets, and despite the uncertainty and turbulence earlier in the year, global markets continue to price in a positive outlook for the rest of the year, according to GSFM and its fund manager partners Payden & Rygel, Munro Partners and Man Group.

“The advent of Trump 2.0 was always expected to make for interesting times in financial markets, and analysts who focused on the macro foresaw a dire scenario where tariff announcements would, at the least, make inflation ‘stickier’, pushing the Federal Reserve to adopt a conservative approach to policy rate reductions,” says Stephen Miller, investment strategist at GSFM

“Additionally, a lax approach to the budget deficit, which was already around 6.5 per cent of GDP, was expected to compound an already challenging bond issuance picture and see bouts of market indigestion that would at the very least prevent bond yields from falling and perhaps send them higher,” says Miller.

The recovery in risk markets since the post ‘Liberation Day’ lows in mid-April have been impressive and the S&P 500 has bounced circa 25 per cent from its lows, catching most analysts off guard, says Miller.

“Some of those elements have unfolded largely as anticipated but in some important respects elements of that scenario have gone awry.

“First, there is the ‘TACO’ (Trump Always Chickens Out) phenomenon, where the administration has walked back some of the more severe elements of the ‘Liberation Day’ announcements. Second, there is very little evidence in the hard data that the ‘stagflation-lite’ scenario is a clear and present danger. Inflation has been more quiescent than anticipated and activity has been more resilient.

“And lastly, macro-focussed analysts understandably tend to give substantial weight to macro variables such as interest rates, bond yields, and budget deficits, which underplay structural elements that can be big drivers of equity market performance.

“There is still a chance that inflation will prove ‘sticky’ and activity growth will be challenged but there are some big structural themes at work at the moment, like the rise of AI and technology, climate change, demographic shifts, deglobalisation and oligopolisation. These structural influences can have profound effects on equity market performance and when that is the case it is a particular opportunity for skilled stock-pickers,” says Miller.

Eric Souders, director and portfolio manager at Payden & Rygel, says that despite greater clarity around US policy developments and positive market sentiment, wage growth, labour market strength, and both nominal and real levels of growth in the US are all pointing to a slowing US economy.

“Compared to Q1 2025 trajectory, the US economy appears to be slowing. Wage growth has declined from mid to low single digits. The labour market has cooled, evidenced by a decline in job openings and less wage pressure. Inflation has also declined. The net result is nominal GDP likely in the three to four per cent range, which should slow nominal spending, corporate revenue, and corporate profits absent margin expansion.

“The US economic slowdown is happening in conjunction with a US policy mix that remains growth negative, given the combination of tariffs, immigration, and fiscal policy. To that end, a reacceleration in the US economy would likely require further easing in financial conditions, relaxation of the growth negative policy mix, or a productivity boom,” said Souders.

All the while, markets do not appear to be assigning much likelihood to a growth slowdown, which Souders says is particularly evident in equity pricing and 2026 earnings expectations.

“The US equity market is currently pricing in a very optimistic economic outcome, with forward multiples near all-time highs at 24x. Additionally, earnings growth expectations are suggestive of a strong economic outcome, particularly in 2026, where earnings growth expectations are near 13 per cent. The US interest rate market appears to be pricing an outcome that is more consistent with a soft landing, with two cuts from the Fed expected in the next six months.

“In general, fixed income yields in the five to six per cent range look attractive, particularly when compared to other markets that appear expensive, such as equities.

“With respect to portfolio positioning, we remain modestly cautious on price risk in credit given market pricing relative to the potential range of economic outcomes. Our favoured exposure within credit is emerging market debt and prime areas within the consumer category, such as US housing. We remain more cautious on the subprime consumer cohort and cyclical portions of the corporate sector, such as energy.

“Within interest rates, we are overweight interest rate duration relative to historic averages, and currently prefer more duration outside of the US, specifically in emerging markets, and are considering other developing markets like Canada and Europe. We also think the US dollar remains overvalued despite the 10 per cent plus weakening post Trump election,” says Souders.

With the US administration paying attention to whether the US economy will end up in recession, and what the domestic effects of the tariff agenda might be, Nick Griffin, chief investment officer at Munro Partners, says this strengthens his case to remain bullish about the US equity market heading into the second half of 2025.

“We remain bullish on the US equity market and believe US exceptionalism will resume and there are several indicators supporting this.

“Firstly, the US imposed tariffs were quickly rolled back to reduce the level of damage to the US economy. Secondly, we expect further rate cuts from the Federal Reserve, as hard economic data in the US is clearly slowing, and lower interest rates create a positive environment for growth equities.

“Lastly, and most importantly, fundamentals, specifically areas such as artificial intelligence, climate change and security, are all continuing to benefit from further investment, and in many cases investment in these areas is accelerating.

“What we are also seeing coming through are some of those structural changes that we believed existed for markets in 2025 driven by the Republicans winning the US election. These include the Big Beautiful Bill’s tax cuts, and also strong M&A and capital market activity, evidenced by several IPOs being offered to investors, and the subsequent strong performance of these listings.

“As we move into the second half of 2025, these structural changes will continue to evolve around us, presenting opportunities to invest in earnings growth.

“In particular, we believe more opportunities for investment will become apparent at the application layer of the AI stack. Companies are rapidly advancing the use of AI in their businesses, and as such we believe over the next several years more AI applications will be created,” he says.

Man GLG Asia Opportunities Fund portfolio manager, Andrew Swan, says the US tariffs have created an added layer of complexity in Asian markets, however a weakening US dollar and AI are contributing to a more favourable outlook for this market.

“The US-China trade tensions may see companies shift production bases to lower-tariff areas, which could lead to stockpiling in developed markets. Economic outcomes will depend on US-China trade negotiation results, as each industry tackles tariffs differently.

“China and Southeast Asian nations are expected to be some of the most affected by US tariffs, as Asian nations export heavily to the US. However, a weaker US dollar could help emerging nations in the region.

“Emerging markets are expected to do relatively well when the US dollar is weak. It provides a capital inflow into the region, particularly into the high-yield economies and it also allows central banks in the region to cut their short-term interest rates because the fear of currency depreciation and the inflationary impact of that starts to subside.

“That perhaps explains why markets in Asia have been resilient and continue to push to new record highs despite global politics, US tariffs and general weakness. The tailwind of a weaker US dollar is starting to permeate through markets.”

But he said this time around, China is very much exposed to the weakening US dollar.

“Chinese policymakers have been putting currency stability as number one priority for the past 18 months or so. That means running high real interest rates versus where perhaps the economy should be. So, anything that happens in the US is quite important for easing financial conditions in China, and more so than what we’ve seen in the past.

“It is a positive for the whole region, not just the smaller economies, but also the larger economies. And if perhaps this period of a weak dollar will persist, it will be a nice tailwind for the region,” he said.

According to Swan, the next phase of artificial intelligence (AI) could also benefit Asian economies and their stock markets.

“So far AI has been very helpful upstream in semiconductor companies, but we do expect that demand to now move downstream in the coming year or two.

“Whether we are talking about laptops, smartphones or other devices, once AI-driven innovation spreads to electronics manufacturing and stimulates product development, that will really benefit many Asian companies,” said Swan.