President Donald Trump has talked openly (and backtracked) about firing Federal Reserve chair Jerome Powell in recent weeks as he continues to believe the Fed is holding back America by keeping interest rates high.
His argument is that rates should be slashed to 1% to help stimulate the economy but misses out on some key problems. For starters, it will discourage investors from buying US debt, which will likely be required in the future as his Big Beautiful Bill Act, which promises tax cuts and spending, will almost certainly need to be financed from additional debt. It isn’t coming from meaningful budget cuts, that’s for sure.
This one issue is a microcosm of the Trump presidency so far. The US feels like a minefield: both politically and economically.
Strong arguments in favour of certain policies have their drawbacks that are often swept under the rug, while one set of economic data can seemingly contradict another.
I thought that the start of the year 2025 would be a period of prosperity for American companies (given how business-friendly Trump was during his first term), but this time around, there is far more chaos.
Markets typically hate chaos and uncertainty, which is why the S&P 500 has fallen behind the rest of the world this year.
Yet, while many fund managers and experts have suggested now is the time to diversify away from the US, many others continue to have high weightings to the world’s largest market.
It makes sense. America continues to be the most growth-oriented market in the world, housing some of the most innovative and disruptive companies. And these mega-cap tech stocks dominate the global investing landscape.
In a world that continues to evolve and grow, markets with older, more defensive companies (I’m looking at you, UK) risk being left behind.
Dominated by banks, miners and oil, these companies are all solid businesses, but they are not leading the next wave of innovation and are therefore unlikely to profit from things like artificial intelligence, electric vehicles and the disruptions we do not yet know about.
Businesses will adapt and use these innovations, sure, but they are not going to be the ones making the meaningful gains from producing these technologies.
So what should investors do? In the short term, the US is as risky as I can ever remember it being. Spats between the president and the Federal Reserve, a potentially inflation-turbocharging ‘Big Beautiful Bill Act’ and a fracturing of the post-World War Two global order mean there are serious risks with lumping money into American stocks.
Throw in the fact that the US dollar is weakening and, from a UK perspective, returns might fail to live up to expectations.
But over the long term, it probably remains the best bet for investors who want to capitalise on an ever-changing world full of future growth potential. Silicon Valley remains a hive of innovation.
Diversification will help, particularly in the short term, but will not insulate investors from the worst, if this chaos continues for the next three years.
Investors should absolutely prioritise broadening their portfolios, but longer term should keep a healthy chunk in the US. They may just have to get used to taking many more lumps along the way than they have in the past.