Equity markets are currently experiencing heightened volatility, but is it cause for concern, or an opportunity?

Equity markets are currently experiencing heightened volatility, but is it cause for concern, or an opportunity?

We would argue that it’s both, because without one, it is hard to find the other.

Most agree that for long term investments, this is an opportunity – it might not be an immediate one, and it might take a while to be realised, but an opportunity nonetheless. One simple fact is that US stocks represent much better value now than they did at the end of 2024 with some of the major names having dropped well over 20%. They’re the same companies, they’re just cheaper. We start to get suspicious and nervous when stocks only move in one direction so this correction actually means that for long-term buying, we can rest a little easier.

In the shorter term, however, analysts are divided, and given that nobody really knows what Trump is up to, this isn’t surprising. What is slightly surprising is that the conflicting opinions appear to be geographical, with European banks being more sceptical than their generally sanguine US rivals.

Strategists at Switzerland’s UBS Group and the U.K.’s HSBC warned on Tuesday of further declines for US equities as economic risks mount. UBS thinks the S&P 500 Index could see another slump of 8% or so, while HSBC double-downgraded US stocks.

To that point, US consumer confidence fell in March to the lowest level in four years on concerns of higher prices and a weakening economy as tariff threats escalate, according to a gauge from the Conference Board. And Bank of America data released on Tuesday showed clients were net sellers of US stocks for the first time in eight weeks.

This diverges from what Wall Street giants like BlackRock, JPMorgan Chase and Morgan Stanley are saying. In recent days, the US money centre banks speculated that the brunt of the recent equity selloff has likely ended, with JPMorgan strategists predicting a low risk of another momentum unwind, and Morgan Stanley seeing tailwinds for a “tradeable rally.”

According to Jean Boivin, head of the BlackRock Investment Institute, US equities will soon regain their long-held edge over European peers as the brighter outlook for the old continent’s stocks is limited to sectors such as defence and banks. “This is a pretty narrow European story,” Boivin said in an interview, “There’s no strong conviction yet to play Europe over the US over a six-to-12 month horizon. We need to see more fiscal impetus beyond defence, and implementation will be key.”

In a reversal of trends from past years, Europe’s benchmark Stoxx 600 Index is enjoying a record outperformance of the S&P 500 in dollar terms this quarter (take into account that it is rare for Europe to rally at the same time the S&P is falling). The move is based on optimism around a ceasefire in Ukraine and Germany’s historic fiscal reform, which has sent defence stocks to all-time highs. The Stoxx 600 Banks Index has also surged 28% this year, driven by resilient earnings and the fact that they never fully recovered from the financial crisis – most are still more than 50% from their 2007 highs.

In the US, on the other hand, signs of a slowing economy and doubts about high big tech valuations have roiled markets. Volatility has picked up globally ahead of April 2, when US President Donald Trump has promised to enact levies on key trading partners.

Boivin said the US stock market “can live in a world with some tariffs.” He expects US earnings downgrades to be short-lived as tariff-related uncertainty dissipates.

“The US is the place where we expect to see the strongest earnings growth on a six-to-12 month horizon,” the strategist said. “We think a 10%-tariff world is a likely landing zone, and the US can adjust to that. But if it’s much more than that, then it’s a different story.”

As previously stated, Boivin’s views are at odds with other forecasters, including UBS and Citigroup. UBS’s chief strategist Bhanu Baweja said this week he expects the S&P 500 to slide another 8% as a consumer slowdown crimps corporate earnings. And Citi’s Beata Manthey expects further European gains.

Boivin has a neutral recommendation on European equities and is overweight on the US on a tactical basis.

“The main thing now is uncertainty can lead to paralysis,” he said. “Once we have clarity on the exact tariffs, it might be bad for some sectors and good for others, but the markets will get on with it.”

For much of last year, market forecasters bumped up their outlooks for US equities in tandem, chasing a rally that propelled the S&P 500 from one record high to another. But a quick 10% drop from the index’s February high caught them offside, triggering a debate over which way stocks will go next.

The division underscores the difficulty of investment forecasting at a time when markets have few answers about the long-term toll of President Donald Trump’s tariffs, which are expected to kick in on April 2, and the trajectories of economic growth and inflation are so uncertain.

However, few Wall Street firms are calling for steeper losses from here. Goldman Sachs Group and Yardeni Research have reduced their expectations for the S&P 500 to account for the correction, but they still expect gains.

The average 2025 year-end target from strategists tracked by Bloomberg stands at 6,539 even after adjustments, implying a 14% rise by December. The lowest prediction is from Stifel Nicolaus & Co. at 5,500, and the highest is from Oppenheimer & Co. at 7,100.

As with all analysis and opinion, the truth is usually somewhere in the middle. US stocks have taken a beating as Trump has scared off investors with his rather bizarre Presidential method. This isn’t to say that things won’t soon calm down a bit, we certainly hope and think they will, but it might not be for a month or so.

With regard to the European rally, we think this makes little sense and we would be inclined to agree with Blackrock that value could now be in the US as European economic growth falters once again. Europe is being hit with tariffs; German GDP hasn’t increased in 3 years; France is still in political turmoil, and now Trump is increasing levies on an entire continent that he feels was ‘born to screw’ the United States. His Vice President also said in the famous Signal chat: ‘I fully share your loathing of European free-loading. It’s pathetic.’

Europe is not in a good place economically either. Euro Area GDP was 0% in the last quarter of 2024 and grew less than 1% overall during the year. Retail sales hasn’t seen a positive number since September and consumer confidence decreased once again in both the Euro Area (-1.1%) and the EU (-0.9%). Employment expectations also fell in both areas.

European stocks are not rallying because of strong economic conditions, they are rallying because of a switch in asset allocation. The money has to go somewhere, and right now it’s moving out of the US. Europe does provide better value, even if its own outlook is fairly bleak.

From February 14th until the week ending March 14th, European investors withdrew 2.852 billion euros from US equity ETFs, while shifting 14.614 billion euros to European equity ETFs.

The chart below shows how the trend of US dominance reverses from the week of February 7th. During 2024, Europe ETF strategies took in 11.91 billion euros but 99.90 billion euros were poured into US Equity ETFs.

We don’t see a big rally taking place just yet in the US, but it will be volatile and this is where many of our TPP trading strategies will stand out. The next few months will be interesting to say the least, but they will present short-term opportunities in all indices along with a great long-term opportunity for ‘cheaper’ US markets in the longer term. It’s important that our portfolios capture both and profit from both, but over the different time frames.

For the long-term buy-in, US equities are 10% cheaper than they were; for the short-term long/flat strategies, volatility is key. Buy in and sell out as often as the opportunities present themselves. Both should provide for our clients, and our absolute portfolios are positioned well for a bumper 2025.

We wish we had better news for you, but as you can see, the asset management world is divided. The good news however, is that we are here to profit from this indecision and the unknown. We aren’t too worried at the moment, as there is little chance of a total collapse; there is simply no reason for this, and therefore trading around the market moves will be the key to our portfolios this year.

If you don’t have a long-term US tracker in your portfolio, this could be a good opportunity to put one in. We aren’t saying the market will revert just yet, but the timing on a tracker isn’t important, as long as markets do move back up eventually – empirical evidence tells us they will.

So, do we think the market will get back up to its highs and beyond? We do. Will it be by the end of the year? Quite probably.

Our trackers are leveraged to capture the moves of the market at around 1.8x. If the S&P rallies 14% between now and the end of 2025 as Goldman Sachs is suggesting, our tracker will increase in value, as will all its subscribers, by around 25%. It doesn’t matter when it happens, only that it happens.

Have this investment alongside our long/flats, which will continue to trade in and out as the market moves around, and your portfolio could well have a benchmark-beating 2025. Afterall, that is why we designed TPP. It’s modern investing built by professional traders.

If you would like more information about how to set up a TPP portfolio, please do contact us. One of our portfolio managers would be happy to speak to you.

Disclaimer: The views expressed in this article are the author’s own and should not be considered in rendering any legal, business or financial advice.

Past performance may not be indicative of future results. Therefore, you should not assume that the future performance of any specific investment or investment strategy will be profitable or equal to the corresponding past performance.

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