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INVESTMENT NEWS FEBRUARY '25

Monthly-update-investment-news

Speed read

  • The ECB cut interest rates for the fifth time in January by 0.25% to 2.75%. The Fed, on the other hand, left interest rates unchanged at 4.5%.
  • President Trump began his second term by immediately imposing tariffs on Canada (25%), Mexico (25%) and China (10%), and announced that Europe would soon follow.
  • According to calculations by Wells Fargo, this will cost American households an additional $2,000 per year in living expenses.
  • President Trump uses these tariffs primarily to force other countries into deals that benefit the US economy.
  • The US will not be led by a politician for the next four years, but by a Businessman.
  • US stock prices have been supported by much stronger growth in corporate profits than in the rest of the world since 2010.
  • It is expected that corporate profits in the US will again increase more than outside the US in 2025.
  • More than other countries, the US is all about innovation and profitability.

ECONOMY

Although inflation in the Eurozone has been rising for four months in a row and at +2.5% is well above the ECB's 2% target, the ECB cut interest rates for the fifth time in January by 0.25% to 2.75%. The ECB is expected to cut interest rates by three more times by 0.25% to 2% by the middle of this year in the hope of stimulating economic growth. The Fed, on the other hand, left interest rates unchanged at 4.5%. The market expects the Fed to cut interest rates by another 0.5% this year.

1. ECB Main Refinancing Rate - Feb 2025 - 1042x575px
2. Fed Funds Target Rate - Feb 2025 - 1042x575px

Given the strong economy (24Q4 +2.3% annualized) and high inflation (+2.9%), this seems unlikely. This is even more so now that President Trump has started his second term by immediately imposing import tariffs on Canada (25%), Mexico (25%) and China (10%) and announced that these will soon follow for Europe. He thereby breaks a long trend in the US towards increasingly free world trade.

3. History of US Tariffs - Feb 2025 - 1042x598px
4. Trump tariffs threat index - Feb 2025 - 1042x598px

According to President Trump, this all fits into his “Make America Great Again (MAGA)” vision. The US imports $216 billion worth of auto parts and $93 billion worth of crude oil from Mexico and Canada together. According to calculations by Wells Fargo, American households are spending an additional $2,000 per year on living expenses because of this alone. In such a scenario, inflation will rise sharply and the FED will raise interest rates rather than lower them further. It is therefore more likely that President Trump will use the threat of these tariffs mainly to force other countries to make deals that benefit the American economy. The more foreign countries give in, the higher the economic growth and the lower the inflation in the US will be. The US will not be led by a politician for the next four years, but by a Businessman.

Financial Markets

Despite the unrest in the financial markets about US import tariffs and the Chinese Deep Seek as a competitor for the American ChatGPT, the S&P 500 rose by more than 2% in January. Since 2010, US stock prices have been supported by a much stronger increase in corporate profits than in the rest of the world. However, especially since 2020, the rise in the value of US stocks has increasingly exceeded this relatively stronger increase in corporate profits. As a result, US stocks are expensive compared to both their own history and compared to stocks outside the US.

5. US share of global equity market - Feb 2025 - 1042x632px
6. The US has a valuation at its 20-year peak - Feb 2025 - 1042x632px

For investors with a fear of heights, there are cheaper alternatives almost everywhere outside the US. However, it is good to realize that there are also still indices in the US, such as the S&P 500 equal weight, the S&P mid cap and S&P small cap, which have a P/E that does not differ much from the 20-year average. In addition, it is expected that in 2025, corporate profits in the US will again increase more than outside the US. In Europe, legislation and regulations, sustainability, deindustrialization and energy dependency have become increasingly important themes and this is often at the expense of households and companies. Brexit has sometimes literally and figuratively trapped the UK on an island. In the US, on the other hand, almost everything revolves around innovation and profitability. President Trump, with his sometimes incomprehensible and unpredictable measures, also seems to want to make favorable deals and put the interests of American households and companies first.

7. Valuations closer to long-term averages outside of large cap - Feb 2025 - 1042x655px
8. GS top-down vs. consensus bottom-up estimates of 2025 EPS growth - Feb 2025 - 1042x655px

Disclaimer:

While the information contained in the document has been formulated with all due care, it is provided by for information purposes only and does not constitute a professional advice. We would encourage you to seek appropriate professional advice before considering a transaction as described in this document. No liability is accepted whatsoever for any direct or consequential loss arising from the use of this document.

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