Latest challenge for investors: navigating tariffs, politics and volatility

The chaos of the current global trade war should not deter investors from sticking with American companies, says Jack Manley, executive director, global market strategist at J.P. Morgan Asset Management.

“I am a U.S. bull even today,” he said on the Soundbites podcast this week.

Investors looking for quality stocks should be focusing on large-cap companies with “a pretty hefty exposure to U.S. equities,” he said.

“The pond that you’re fishing in, if you are a global investor right now looking for higher-quality places to hide, probably would be something within the realm of the S&P 500,” he said.

The S&P 500’s 10% decline in the 48 hours after U.S. President Donald Trump’s “Liberation Day” tariff announcements was sobering, he said, but staying invested in stocks and bonds remains preferable to liquidating.

“The benchmark here, when it comes to allocating your assets, should not be whether the market is up or down. It should be whether or not that risk asset that you have invested in outperforms cash,” he said.

He pointed out that through recent incidents of extreme market volatility — the dot-com bubble, the global financial crisis, the Covid pandemic — risk assets continued to outperform cash.

“The first thing I would say to investors is you don’t want to be over-allocated to cash right now. You just want to take risk a little bit more cautiously,” he said, “which I know sounds like an oxymoron, but in a world where there are so many different flavours of risk, I think it actually is quite possible.”

In fixed income that might mean taking a little bit more duration exposure, he said, especially for those concerned about a shift down in the global economy.

“If there is indeed a recession, central banks around the world will respond by lowering interest rates. And when interest rates drop, the value of existing fixed-income instruments goes up,” he said. “There’s your ballast.”

Manley said fixed-income investors might also shorten up on credit quality.

“You probably want to be in higher-quality instruments right now, because that lower-quality stuff is going to get washed out to sea in the event of a recession,” he said.

As for equities, large-cap stocks are, generally speaking, synonymous with quality.

“It is a lot harder for a big company to go out of business than it is for a small company to go out of business,” he said. “And large-cap companies — especially those that are a little bit more oriented towards longer-term secular themes and trends like technology — are a little bit more insulated from short-term disruptions, which is what I think we’re experiencing right now.”

Manley said he remains bullish on America because no matter how the tariff story breaks, the U.S. economy is likely to end up in a favourable position.

“We will either be experiencing a year where all this tariff stuff does exactly what it’s supposed to do, and actually ends up being long-term positive for U.S. GDP growth,” he said. “Or we are living in a world where the U.S. drives its trading partners into a recession, ends up in a recession itself, and then becomes the best house in a bad neighbourhood.”

While the rest of the world shifts to a lower gear, U.S. GDP growth will be amplified by tax cuts, reduced federal spending and the effects of deregulation, he said. The biggest obstacle in the short term is the uncertainty caused by Trump’s reshaping of global economic ties.

“Investors have seen, over the course of this year, tariffs being implemented, and then rolled back, doubled and then halved, delays, defers, exemptions. They don’t really know what to make of this most recent push. Are they actually here to stay, or will they be revised again in a week?” he said. “It makes a whole lot of sense why the equity market has not been particularly happy about all this news.”

Manley acknowledged that the tariffs may prove to be little more than a negotiation tactic, designed to extract promises and concessions from America’s trading partners. Success — however that may be defined by the Trump administration — will be difficult to gauge.

“At the end of all this, there may be a pretty fundamental shift in the way that economies are connected to one another. But this too shall pass,” he said.

“As long as we kind of keep our noses to the grindstone, put those blinders on, focus in on the long term, and maintain a disciplined approach toward asset allocation, we will be able to weather this storm, provided we don’t make any emotional decisions that could then end up negatively impacting portfolio performance.”

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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.