Managing Risks in US Investments
A Guide for Cutts and Co Accountancy Clients
As we delve into the complexities of the US market in 2025, it is imperative for investors, particularly those at Cutts and Co Accountancy, to be aware of the potential risks and opportunities that lie ahead. Given the significant investment many of our clients have in the US market, understanding these factors is crucial for making informed decisions.
Inflation and Economic Growth
One of the primary concerns for US market investors in 2025 is the persistence of sticky inflation. Economists and strategists are closely watching how inflation rates will impact economic growth. According to analysts, the way policies are executed, especially those related to tariffs, will have a substantial impact on near-term growth and, consequently, on market valuations.
Tariffs and Trade Policies
Tariffs remain a significant risk factor. The implementation of tariffs by the US administration can have far-reaching consequences on trade relationships, particularly with China. While some analysts worry about the negative impacts of tariffs, others point out that improved US-China relations could mitigate these risks and even present positive opportunities. It is essential to consider both the potential downsides and the overlooked positives that could arise from these policies.
Macro-Economic Concerns and Investor Complacency
There is a growing concern that investors might be underpricing risk in the US market. Analysts at major institutions suggest that markets seem to be ignoring macroeconomic concerns, which could lead to unexpected volatility. This complacency could result in investors being caught off guard by market fluctuations, highlighting the need for a vigilant and diversified investment strategy.
Recession Risks
While many experts believe that the US is likely to avoid a recession in 2025, this outlook is not without its caveats. The avoidance of a recession heavily depends on the management of tariffs and other trade policies. Any missteps in these areas could push the economy towards a recession, which would have significant implications for investors.
Sustainability and Regulatory Divergence
Sustainability commitments are another area of concern. The global shift to the political right is leading to increased divergence in sustainable investing practices. In the US, some asset managers are pulling out of climate initiatives, while their UK and European counterparts are reinforcing their commitments.
This divergence poses regulatory and litigation risks that investors need to be aware of. For instance, some clients are considering moving away from managers who exit key sustainability initiatives like the Net Zero Asset Managers Initiative and Climate Action 100 Plus.
Investor Sentiment and Portfolio Adjustments
Reflecting the growing unease, UK retail investors are increasingly reducing their exposure to US equities and shifting towards bonds. According to recent data, 8 percent of UK investors are considering reducing their US equity exposure, while 13 percent plan to increase their bond holdings. This trend indicates a broader caution among investors regarding the US market.
Mitigating Risks and Maximising Opportunities
Given these risks, it is crucial for investors to adopt a proactive and diversified investment strategy
Diversification
Spread investments across different asset classes and geographies to minimise exposure to any single market risk.
Active Monitoring
Keep a close eye on macroeconomic indicators, policy changes, and global events that could impact the US market.
Sustainability Focus
Consider the long-term benefits of sustainable investing and be aware of the regulatory landscape in different regions.
Risk Assessment
Regularly assess and adjust your investment portfolio to reflect changing market conditions and risk profiles.
In conclusion, while the US market presents several risks in 2025, it also offers opportunities for growth and returns. By being informed about the potential risks and taking a strategic approach to investment, clients of Cutts and Co Accountancy can better manage their investments and achieve their financial goals.
As always, it is advisable to consult with financial advisers to tailor your investment strategy to your specific needs and risk tolerance.
