Economic outlook
There is no doubt that the economic outlook currently hangs in the balance. Factors that would support continued progress vie with those that would challenge growth and prosperity. On the positive, it looks like the US economy, still by far and away the most important in the world, is motoring along. While markets suffered a huge upset in the spring on fears that President Trump’s tariff policies would upend the domestic and global economy, this has not come to pass. Investors and corporations seem to have digested the more limited tariffs that Trump has now imposed, and fears of an imminent downturn have receded.
In the US, fears that those tariffs would drive inflation considerably higher have so far been contained, though the past three months have seen prices rise overall. The labour market, again a very important indicator of the economy, is similarly in a balanced position with figures showing a steep decline in the number of jobs created but the unemployment rate remains close to historic lows.
And yet the uncertainty engendered by the President, prone to issuing edicts in the small hours on social media, continues to bedevil the outlook, particularly combined with long-term fears over government debt levels. Across the western world, governments have been borrowing and spending more without raising enough extra income to offset this. This is most acute and significant in the US: acute because their national debt is now absurdly high at $34 trillion, and significant because of the US’s place in the global economy and its stewardship of the world’s reserve currency.
The administration’s “big, beautiful bill” continues to pile on debt, while Trump is making all the wrong noises about how to manage an economy where people make decisions based on good data. Poor job numbers a few weeks back led to the firing of the head of the statistics division responsible, while Trump is also attempting to fire a current Federal Reserve governor, as well as pressuring Fed Chairman Jerome Powell to lower rates. If fears over stewardship were to amplify, this could have a significant effect on bond markets, currencies and eventually equity markets.
Equities
Equity performance over the past year
15/09/2024 – 15/09/2025, local pricing
There seem to be two main assumptions driving stocks markets to record highs: first that the US economy will continue expanding and second, strong belief of substantial progress in the development of artificial intelligence. The latter is a multi-year long-term theme that, if it were to happen, could accelerate huge economic progress by automating work that has been traditionally undertaken by humans. Leaving aside fears of how this will affect the job market, the benefits for society as a whole could be significant. This belief is what is underwriting the continued growth of the larger technology companies in the US and their dominance of equity markets.
With US equities now accounting for 60 per cent of the value of global markets, it does seem that something is off kilter. Some feel that the relentless increase in market value of the larger technology companies (Nvidia’s $4 trillion market cap is more than seven times Ireland’s GDP) is bearing too close a resemblance to the dot-com bubble of the late 1990s. Indeed, the price/earnings ratio of the S&P 500 now hovers around 29 times, as against about 17 for Europe’s Stoxx 600. Yet unlike the tech bubble – when many companies gained high valuations before even commencing operation – there is no doubt that the Apples and the Alphabets of this world are already extremely profitable.
Fixed income
Bond performance over past year
All bonds 10+ years, 15/09/2024 – 15/09/2025, local pricing
The US 10-year Treasury yield has dropped significantly year to date. From a peak of 4.8 per cent in early January, the yield is now sitting just above 4 per cent. By contrast, in Germany, France and the UK, 10-year bond returns all currently sit around their early January levels.
The long end of the bond curve has seen a similar divergence between the US and Europe, with 30-year bond yields up 0.5% year-to-date in France, 0.7% in Germany, but marginally down in the US.
What’s driving this difference? Concern over the level of national debt and governments’ ability to service this exists in all these countries, which would naturally drive bond yields higher. Rising inflation (as currently being seen in the UK and US) would also push yields up.
On this basis, we might expect to see increasing yields in much of Europe and the States. Countering this, investors anticipate weaker economic growth will drive interest rates lower (in the US) or at least hold them steady (Europe). It’s possible however that the reduction being seen in the States may also reflect investors’ concerns on the independence of the Fed – reflecting our earlier comments on Trump’s pressure on its governors.
Euro cash
The ECB has paused rate reductions around the 2-2.4 per cent range. Any deterioration in the growth outlook would lead to further downward pressure.
Irish commercial property
The Irish commercial property market is expected to slowly transition into a recovery phase in the coming years, supported by improved credit conditions. Demand is likely to be focused on properties with strong environmental qualities.
It remains a difficult asset class due to liquidity concerns and the structural challenge that many properties may require retrofitting to remain competitive.
Commodities
Commodity performance over past year against equities
15/09/2024 – 15/09/2025, US dollars
Oil prices have slid this year on the expectation that the trade wars will slow economic growth. The volatility of commodity markets means they are best left to serious risk takers.
Hedge funds
Hedge fund performance over past year against equities
31/08/2024 – 31/08/2025, US dollars, hedge funds priced monthly
Hedge funds can make an appropriate investment because of their defensive qualities – they’ve disappointed over the longer term but have been better recently.
Currency funds
These funds have shown gains and losses recently. They are useful as a diversifier because of the relative independence from other securities but can experience significant volatility over the short term.
Multi-asset funds
Because of the very wide range of investments they hold, they provide useful diversification, and the ability to dynamically shift asset allocation can provide some protection in times of equity market corrections.
Senior loans
These floating-rate sub-investment rate securities offer a premium over cash are useful for diversifying a portfolio.
In summary, while markets remain buoyant, they are also fragile, with valuations stretched and political and economic risks ever present. For investors, the key is not to be swayed by exuberance or short-term sentiment, but to remain disciplined, diversified and focused on long-term objectives. At Acuvest, our role is to navigate these uncertainties on your behalf, balancing opportunity with caution to help safeguard and grow your wealth in a sustainable way.
