Please see below, an article from Tatton Investment Management analysing the key factors currently impacting global investment markets. Received this morning – 30/06/2025:
Markets calibrate to Trump 2.0
We wrote before that US involvement in the Israel-Iran war was ‘priced in’ and therefore unlikely to hurt markets. Quite the understatement. US stocks approached all-time highs and oil prices fell the moment Iran struck a US air base – as traders correctly interpreted the strike as symbolic and ultimately de-escalatory. You could argue the Middle East is no longer as big a concern for western economies (thanks to the US shale boom) but we suspect it’s more that markets have adjusted to Trump 2.0’s extreme “art of the deal”.
The president made his show of strength, and investors think that makes him more inclined to extend the 90 day tariff moratorium when it expires on 9 July.
UK and European stocks lagged, but are still ahead of the US year-to-date. The 5% of GDP defence spending target will mean more fiscal expansion – even if it’s never actually reached. Defence stocks are big winners but the 1.5% allocated to defence-adjacent investment will benefit the broader European economy.
The UK market also got some good news in the form of software company Visma choosing London for its IPO. This is a good sign, given the UK stock market liquidity problem we discussed last week.
The dollar weakened again, despite positivity in US stocks. Its decline in 2025 has hampered returns on US assets for investors outside the US. We’ve put it down to capital outflows before, but that makes less sense given the gain in US capital assets. We can speculate that it might be down to those outside the US converting their dollars (payments for selling to Americans) to local currency, rather than funneling them back into US assets.
Investor optimism is good preparation for the upcoming hurdles: tax cuts in the “Big Beautiful Bill” and the 9 July tariff deadline. The risks are real, but hopefully that optimism pulls us through.
Improving US earnings outlook has a distribution problem
US equity earnings are doing better than expected – and better than elsewhere – despite tariffs weighing on the outlook. Q1 earnings for S&P 500 companies comfortably beat estimates, and recent analyst revisions have been significantly less negative than into “Liberation Day”. But almost all of that positivity comes from the ‘Magnificent Seven’ tech stocks (though perhaps we should say magnificent six, given Tesla’s continued losses). Excluding the Mag7, the rest of the S&P has similar projected 2025 earnings to Europe – and below Japan and China. Expectations for 2026 and 2027 are even worse for the US index.
Of course, taking out the best performers (the Mag7) will always make an index worse – and even then it’s pretty similar to the Eurostoxx 600. Considering the wider index is important, though, because it gives a better indication of the US economy. The Mag7 are fairly isolated from tariffs (barring perhaps Apple) for example, being genuinely global. Tariffs are expected to hurt most other companies – but you might also argue this is too pessimistic. Most expect Trump to delay tariffs past the 9 July suspension deadline, for example, and you could argue that analyst predictions are a little too negative (meaning future earnings beats are likely).
Pessimism itself is bad for US companies, however. It delays business investment and lowers the value of the dollar – reducing the value of equity earnings for international (particularly European) investors. In sterling terms, for example, US earnings look significantly worse than Europe’s.
The currency outlook introduces an extra risk, which threatens price-to-earnings valuations (already more expensive in the US than anywhere else). US stocks have less exceptional profit growth than we are used to, and the risks (including currency) are higher. Without even considering the broader geopolitical risks, it isn’t hard to see why global investors’ love affair with US stocks is waning.
Do androids dream of investment opportunity?
Humanoid robots are one of the more curious investment stories gaining traction. Swiss bank UBS expects the market for human-like robots will reach $1.7tn by 2050, while Morgan Stanley predict $5tn. These estimates are always a little speculative (those most interested in future tech tend to be the most optimistic) but the reports are based on thorough analysis of resource availability, market structures and future regulation. In short, new tech (particularly the AI ‘brains’) will make robots cheaper and more viable, while aging populations will increase the demand.
Take the figures with a pinch of salt, but they show the robot market has potential. Morgan Stanley put together a “Humanoid 100” list of companies that make the “brains” (AI systems), “body” (mechanics) or, the most valuable, “integrators” (putting them together). China could benefit significantly, with lower production costs than anywhere else. China’s overproduction problem has hampered its economy more broadly, but it could be a benefit in the robot race. Many analysts think China is already ahead of the US.
Morgan Stanley’s list of robo-stocks is familiar, if a little underwhelming: Tesla, Amazon, Nvidia, Alphabet, Meta, TSMC, Tencent, Alibaba. You would hope that futuristic innovation would deliver fresh new companies (and it probably will, to some extent) but the big tech names have the best chances. They have the most capital and are already involved in AI.
For example, big tech companies still stand the most to gain from the slow (relative to expectation) rollout of autonomous vehicles (AVs), in part because the lead times are so long and require more investment capital.
The AV story (investment buzz followed by as yet underwhelming impact) shows that technology adoption isn’t a straight line. Not only are there regulatory and social barriers, but short-term cyclical factors (the automotive recession) can delay development. We should track the robot investment theme, but bear in mind these risks.
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Marcus Blenkinsop
30th June 2025