This Week in Review | US-UK Trade Deal, ’25 Volatility & ’98 Parallels, Central Banks (May 9, 2025)

Transcript

Don Gaston:

Hello, and welcome to This Week in Review. This weekly segment is designed to highlight a few important developments you may have missed this week, what they mean for markets, and most importantly, the potential impact for investors. Now, let's review what happened this week.

First up a US-UK Trade Deal

Yesterday, the US and UK announced that they had reached a trade deal. However, this one-year agreement is more of a framework for future negotiations than a detailed trade pact. While it reduces some tariffs on cars, steel and aluminum, and removes UK duties on US beef and ethanol, the big barriers remain intact. The UK's digital services tax, a sticking point for American Tech giants, stays in place, and President Trump's sweeping 10% blanket tariffs still looms over most goods. It's a modest start, but for industries like UK auto manufacturing and American agriculture, it could bring some relief as both nations work towards a larger deal. Now, the bigger picture is more sobering. Tariffs, while headline grabbing, act like a hidden tax that weighs on businesses and consumers alike. Despite the fanfare, this deal addresses only a fraction of trade between two countries, leaving uncertainty for US businesses relying on global partnerships. For investors, the lesson here is important: stay clear-eyed about potential risks. Stock markets might have taken yesterday's announcement in stride, but the persistence of tariffs and uncertainty has the potential to slow economic growth and feed into recession fears. While we don't see this as a reason to be bearish today, it's a strong reminder that tariffs can have real consequences.

Next, 2025 Market Volatility and 1998 Parallels

2025 has been a whirlwind year for markets and investors alike. The year started strong, with global markets hitting all-time highs by mid-February, but the surge was short lived. Just 16 trading days later, the S&P 500 entered correction territory and that was before things took another turn. On April 2nd, President Trump's "Liberation Day" announcement came and markets tumbled in a dramatic four-day slide before an announcement of a 90-day reciprocal tariff pause on April 9th brought some much-needed relief. Since then, global stocks have steadily regained their footing, trimming earlier losses. While this recovery is encouraging, much remains to be seen. When we step back and assess this year's volatility, we believe it features the hallmarks of a large correction, and in many ways, parallels the 19% correction we saw in 1998. 98' began on a high note, much like 2025. But turmoil erupted mid-year with the Russian Ruble Crisis and the collapse of a major hedge fund. Stocks plunged sharply, but the correction ended as abruptly as it began. By year end, global markets soared, rising over 24% from October lows. As we've seen throughout history, significant corrections don't mean a year will be lost. Often, markets recover far more quickly than expected. And for long-term investors, remaining disciplined during market corrections is critical. It's natural to feel the pull to make changes during volatile times. But attempting to time short-term market swings is exceptionally challenging. To capture the long-term power of compounding growth, patience is key. Staying focused on your long-term goals, even during turbulent times, has consistently proven to be the most effective strategy for long-term investors.

Finally, the Fed and Bank of England

As expected, the Fed held its policy rate steady on Wednesday, while the Bank of England announced another rate cut on Thursday. Headlines have largely focused on the risks tariffs posed to economic growth and inflation, along with how central banks may react. However, when it comes to interest rates, there's an encouraging trend that many miss right now. The global yield curve is steepening. Why is that important? The yield curve often correlates with banks profitability and willingness to lend. Bank's core business is borrowing at short rates, lending at long rates, and profiting off of that spread. When the curve inverts and short rates exceed, long lending tends to fall as profits evaporate. Starving the economy of fuel. In recent years, financial media worried an inverted US yield curve meant looming recession, which was an understandable concern. But we didn't think inversion was automatically problematic, since banks could still lend profitably thanks to a pandemic-driven deposit glut. Fast forward to today, and it seems nobody is talking about the yield curves' recent improvement. The global yield curve—excluding emerging markets—is now slightly positive, led primarily by steepening outside the US. The Bank of England and European Central Bank rate cuts this year have contributed to this, while the Fed has held rates steady. Overall, a re-steepened yield curve isn't a massive tailwind, but even modest tailwinds can be bullish if they have surprise power, something we believe this has.

That's it for this week!

Thanks for tuning in to This Week in Review. If you're looking for more insights, then don't miss our other series, 3 Things You Need to Know This Week, released every Monday. You can also visit fisherinvestments.com anytime for our latest thoughts on markets. Thanks again for joining us and don't forget to hit 'like' and 'subscribe'!