Shares recover 'liberation losses' - the week ahead

The stock market roller-coaster has continued with the S&P 500 notching up nine consecutive daily gains and the FTSE 100 up 15 days on the trot. The latest rally means that investors have now clawed back all the losses since Donald Trump’s so-called ‘liberation day’ announcement of sweeping trade tariffs in early April.

Where next?

It’s been an exhausting journey so far in 2025, with investors lurching from initial optimism about expected tax cuts and deregulation to a darker place of tariff-fuelled fears about growth and inflation and all the way back again. It’s been a lesson in the merits of staying the course and avoiding the temptation to try and time the market. Catching the tops and bottoms of the past three months’ ups and downs would have been very hard indeed.

History shows that 20% corrections like the one we saw between February and April lead in unpredictable directions. Sometimes they are the pause that refreshes - markets went on to new highs in 2018 and 1998 after technical bear markets. Other times, they are just the start of something worse - the dot.com and financial crisis bear markets spring to mind. There are plenty of examples of a correction leading to a sideways pattern too.

So, the outlook from here is unclear. But back on the ten-year trend line, after being well above in February, investors have reason to be more relaxed. The first quarter earnings season is so far, so good. The expected year on year growth rate has risen steadily through the results round, although expectations are still falling further out as the real economy impact of tariffs starts to show up.

Valuations, too, have fallen back to more reasonable levels. The 5-year cyclically adjusted price-earnings ratio is back below 30 and more in line with the long-run average. The backdrop is more positive now as countries, from Canada to China, grit their teeth and start to sit down with the Trump administration to thrash out trade deals. And monetary policy is starting to look helpful again.

Interest rates

Both sides of the Atlantic can look forward to news on monetary policy this week. The outcomes will probably be different though. The US Federal Reserve is widely expected to defy calls from the President to cut rates, preferring to wait and see what the impact of tariffs will be on growth and inflation. In the UK, the Bank of England looks much more likely to reduce rates from the current 4.5%. The only question is whether it opts for a cautious quarter point reduction or goes into full economic support mode with a bigger half point cut.

OPEC+ changes tack

Slowing growth is not just an influence on central banks. It is also impacting the oil market, with Brent crude dipping below US$60 a barrel as demand weakens in the face of trade and tariff uncertainty. That’s one factor. Another is an unexpected boost to the supply side of the equation after OPEC+, led by Saudi Arabia and Russia, announced on Saturday that it would be raising output for a second consecutive month.

That’s come as a shock. Normally flagging demand would lead to less supply, in a bid to keep the price high. This time, however, the big producers appear to be favouring a market share strategy, in the face of a weaker price. Saudi Arabia, in particular, seems to have become tired of shouldering the burden of production cuts while other producers flout quotas. Discipline within the cartel is weak and tensions between producers running high.

What’s bad news for Saudi Arabia’s budget balance is good news for consumers around the world, however. The oil price is barely half the level it reached in the immediate aftermath of Russia’s full-scale invasion of Ukraine in 2022. It also puts downward pressure on inflation, providing cover for central banks around the world to ease monetary policy and support economies struggling to deal with tariff concerns and slower growth.

Farewell to an investing legend

The other, equally important, announcement over the weekend was one that investors have anticipated for many years. The retirement of Warren Buffett as chief executive of Berkshire Hathaway, the investment company he formed 60 years ago, is an opportunity to remember the Herculean achievements of undoubtedly the world’s most successful investor.

Buffett has a record of beating the US benchmark index over six decades that almost certainly will never be matched. But his influence is greater than simply the numbers. As JP Morgan head Jamie Dimon said, Buffett represents ‘everything that is good about American capitalism and America itself’. David Solomon of Goldman Sachs said he had ‘influenced a generation of leaders who have benefited from his unusual common sense and long-term approach’.

Buffett hands on Berkshire Hathaway to his chosen successor, Greg Abel, in good shape. He has beaten the US benchmark comfortably over one, five, ten, 20 and 30 years. And the company sits on a cash pile of US$350bn, waiting to take advantage of the upheavals that the current trade uncertainty is likely to create.

Buffett’s success is due to a few things that are easy to say but difficult to emulate. He has consistently invested in great businesses and held onto his investments for the long haul. He has used leverage to maximise his returns, without unduly increasing the risk of his approach. He has generated a steady flow of cash to invest through a massive insurance business that throws off low-cost, long-term, reliable funds that ensure he is never a forced seller, but instead an opportunistic buyer at times of market uncertainty. And he is supremely patient, able to wait for the ‘fat pitch’, the moment when the risk/reward profile is most favourable.

All this has enabled him to outperform the index by a few percentage points - not every year but most of them for six decades. And the power of compounding has done the rest. 

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Please note that the views expressed in this article are my own.