Devon Funds 2025 Predictions

Monday 10th February 2025

An interest piece written by Greg Smith, Head of Retail at Devon Funds

Many markets have enjoyed a very positive start to the year. The Dow surged 4.7% in January, while the S&P500 advanced 2.8% and the Nasdaq rose 1.6%. European indices rose nearly 7% to record highs and the UK’s FTSE100 surged over 6%. The MSCI World Index rose 3.6%. The Australian market has also enjoyed a strong start to the year, with a 4.6% rise. The NZX50 has meanwhile been somewhat of an outlier with a 0.9% decline. This comes ahead of an important month, with the earnings season upon us, and a rather important RBNZ decision due towards the end of February.

While optimism has been the prevailing mood in many markets, any air of complacency was shaken by political events in early February, as Donald Trump settled into his work at the Oval Office. The new administration announced blanket tariffs against Mexico, Canada and China, signalling that Europe could be next. Investors at this stage however appear to be taking the view that an all-out trade war is not the most probable scenario, and like Trump’s first term, the current back and forth will ultimately end in negotiations and concessions. Though clearly, this remains a great unknown.

Donald Trump initially signed an order imposing 25% blanket tariffs on Mexico and Canada (10% for Canadian energy imports), as well as a 10% duty on China. While Trump imposed tariffs during his last term, the latest measures are unprecedented. These tariffs have been imposed under emergency economic authority – this has never been used before for tariffs (Nixon used the precursor to the current law in 1971). There are no exemptions to the tariffs, and they were set to remain in place until the White House is satisfied that the “illicit fentanyl trafficking” into the US is under control and there is a dramatic reduction in migration and broader criminal activity at the US borders.

Tariffs include a retaliation clause that will increase penalties if the trading partners impose tariffs on US imports. The measures, in their current form, would have significant impacts. In 2023, trade from Mexico was US$475 billion, while that from Canada was ~US$420 billion (approximately 25% of which is energy-related). The tariffs are estimated now to affect approximately US$1.3-US$1.6 trillion of imports. In recent days, a one-month pause on their implementation has been granted to Mexico and Canada but not to China.

To read the full interest piece, please click here.

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