2/9/25

Weekly Market Recap

Last Saturday, President Trump announced a new tariff of 25% on all goods coming from Mexico and Canada, along with a 10% tariff on imports from China. These tariffs were scheduled to take effect on Tuesday, February 4th. The stock market did not respond well to this news, with the S&P 500 opening on Monday about 1.50% below its previous close. However, the narrative changed throughout Monday and the rest of the week, leading U.S. markets to recover nearly all the losses. This quick turnaround in market sentiment came on Monday when President Trump announced that the tariffs on Mexico would be delayed until March 4th. In addition, the tariffs on Canada were also pushed back to March. President Trump seemed to use these tariff threats as a way to pressure both governments into increasing their border security. This is a pattern we've seen before with Trump: he threatens tariffs, but they don’t always take effect. This will likely be a consistent theme throughout Trump’s second term—he will threaten tariffs, the market will react (potentially negatively), and those moves may reverse quickly if the tariffs don’t take effect. Looking ahead to next week, we expect an inflation report on Wednesday and other economic data on Friday, including retail sales, industrial production, and business inventories.

Chart of the Week

Our chart of the week highlights some statistics about the global investable marketplace. The first bar shows Gross Domestic Product (GDP), a measure of all goods and services produced in a country. As shown in the chart, the U.S. accounts for 27% of global GDP. In other words, 27% of all economic activity comes from the U.S., while the remaining 73% originates from the rest of the world. Despite this, 67% of the global stock market is made up of U.S. stocks. This is partly due to the fact that U.S. stocks have appreciated significantly, far outpacing the rest of the world over the past decade. The fourth bar chart shows the average U.S. investor’s exposure to both U.S. and non-U.S. stocks. As you can see, even though U.S. stocks represent 67% of the global market, and U.S. GDP represents just about a quarter of global GDP, most U.S. investors have nearly 80% of their portfolio weighted in U.S. stocks. There are two main reasons for this. Investors tend to have a home-country bias, preferring to invest in companies they are more familiar with. Additionally, the strong performance of the U.S. stock market has led some investors to abandon international stocks altogether. Since 73% of global GDP comes from outside the U.S., we believe it is not advisable to completely give up on non-U.S. stocks.

Written by:

Ben Rones, CFA®

Senior Analyst at R&R Financial

The commentary in this newsletter is for informational purposes only and should not be taken as personalized investment advice

Chart of the week Source:

BIS, FactSet, IMF, MSCI, J.P. Morgan Portfolio Insights, J.P. Morgan Asset Management.Global GDP are from IMF WEO Outlook and are in current prices (USD) using 2024 GDP estimates as of October 2024. Global stock market data are as of December 2024. Global bond market data are as of June 2024. Average U.S. investor allocation is based on proprietary portfolio screenings of advisor portfolios and are aggregated as of December 2024.Guide to the Markets – U.S. Data are as of December 31, 2024.