Although the US markets were in great shape after Donald Trump's re-election to the White House, they have changed their minds recently.
Almost unimaginable in the minds of investors a few weeks ago, the scenario of a recession in the United States is gaining ground, and investors are worried about it. These fears are overrated.
A wave of bad news
The US markets, which seemed unshakable and promised a bright future, have faced several challenges in recent weeks, which are making investors nervous.
Dithering around tariffs and US trade policy muddies the waters for companies, slowing down their investment decisions and pushing uncertainty to particularly high levels, which weighs on growth.
Also, this same trade policy has further consequences, including risks of boosting inflation, forcing the US Federal Reserve to adopt a wait–and–see policy as a prudent measure. While investors expected many cuts in key rates in 2025, they had to face the facts: they would be fewer or non-existent.
In this sense, the Fed's latest forecasts, which still point to two rate cuts this year, have reassured the markets. Rates at still high levels are bad news for equities. Given the yields offered by US bonds, they have become a credible alternative to equities whose valuations remain high.
It is also bad news for the technology sector, the locomotive of the US stock market in recent years. With significant capital needs, offering little or no dividends, and often only becoming profitable after long years of waiting, companies in the sector relied on cheaper credit to remain successful on the stock market. Faced with the stabilisation of key rates at a still high level, they have doubts.
The 'Magnificent Seven', a term used to describe the top tech companies in the US, also must deal with a rapidly changing reality. They were said to have no credible competitors. The sudden arrival of the Chinese company Deepseek in the world of artificial intelligence has changed the situation. This new competition, along with other factors, has led to a reevaluation of the tech sector's prospects.
Developed at a reduced cost and lacking the latest technologies, Deepseek raises questions about the need for giants such as Meta (keep), Microsoft (buy), Alphabet (Google, buy) or many others to invest such large sums or pay so much for the latest generation of chips (Nvidia in particular, keep) to obtain convincing results.
These questions run through investors' heads and mean that American tech stocks have not recovered. Elsewhere, Tesla (sell) is suffering from Elon Musk's controversial image and comments, which weigh on the brand's image, but also from increasingly sharp and innovative Chinese competition, determined to dominate the world of electric vehicles.
Finally, like cheaper credit, the reduction in the tax burden promised by Trump is also long overdue, and Americans are wondering why subjects such as customs duties or Ukraine dominate Donald Trump's agenda when their priority is elsewhere.
Taken together, these factors lead to lower confidence, softer retail sales, and job creation, which has raised fears of a recession in the United States. Asked about the likelihood of such an outcome, the American President did not want to commit, saying that turbulence is logical in the face of the profound reform of the American economy that he wants to achieve. This did little to reassure investors, who immediately began to imagine a worst-case scenario.
But the economy is on a sound footing
However, panic seems overrated. Of course, investors anticipating an idealised scenario will have to accept that reality is often less linear and more turbulent than expected.
But the US economy remains on a good track. The job market is holding up, and wages are changing faster than inflation, which increases purchasing power. The promised tax cuts for both households and businesses will eventually see the light of day, providing an additional boost to domestic demand.
On the credit front, the rate decline is slow but real. Currently between 6.6% and 6.7%, the 30-year fixed rate, which serves as a benchmark for real estate in the United States, remains high in absolute terms but is gradually moving away from the 7.0% levels reached at the beginning of the year.
This is enough to give hope for a recovery in the construction sector, whose inaction in recent years has raised property prices.
In addition, while American leadership in all cutting-edge technologies is challenged by Asian players, and China in particular, the country retains an immense capacity for innovation linked to its ability to attract talent worldwide. The Americans (consumers, businesses, technology) have not said their last word.
Finally, in the event of a major growth glitch, the Federal Reserve, whose key rates currently stand between 4.25% and 4.5%, has room for manoeuvre to support the economy. In our opinion, these are good reasons to continue to believe.
The US remains competitive, but there isn't euphoria
Warren Buffett, a true legend of the investment world, once said that you should never bet against America. Given the performance of the US economy, its equity markets, and the country's gradual enrichment, which has left the European Union far behind in recent years, it is difficult to argue with him.
Admittedly, the indicators show moderate economic development and no longer the euphoria that we have often witnessed since the end of the pandemic. However, the United States remains highly competitive and has many advantages.
Therefore, it is a safe bet that a possible slump in the US economy will not be accompanied by a recession. If the worst were to happen, it would be temporary because the country has the means to bounce back.
The decline in US equity prices presents a good window of opportunity to offer or increase a presence in US financial assets. The current market conditions, including the potential for future growth and the resilience of the US economy, make this an attractive time to invest in the United States, both in the financial and bond markets, across all of our diversified portfolios.
