Global equity markets began the week with a sharp surge in volatility, driven by a significant sell-off in last year’s market leaders — U.S. technology stocks. These high-flying names saw substantial losses ranging from three to 15 per cent in a single trading session, though markets did regain some losses.
Much of the market attributed the downturn to U.S. President Donald Trump’s weekend comments about his willingness to accept short-term economic pain to advance his tariff policy, we as asset managers believe there are deeper and more structural factors at play.
One key underlying issue is the current administration’s need for significantly lower interest rates. Historically, the most effective way to push the U.S. Federal Reserve toward easing monetary policy is through signs of economic weakness and a declining equity market. This strategy may be particularly critical now, given the looming wall of U.S. debt maturities.
Nearly US$3 trillion in U.S. debt is set to mature in 2025, with about US$2 trillion consisting of short-term Treasury bills issued under former Treasury Secretary Janet Yellen. Compounding this pressure is the bond market’s need to absorb an additional US$2 trillion in the form of the U.S. budget deficit. This convergence of factors increases the urgency for lower rates to manage the mounting debt burden while stabilizing financial markets.
Investors can have several strategic approaches to market conditions, depending on their outlook for the global economy. One perspective is to view the current downturn as a buying opportunity. If you believe the economic weakness is temporary and expect Trump to stimulate growth through corporate tax cuts once rate reductions are in place, there are attractive entry points across the market.
Last year’s market darlings, such as U.S. tech stocks, are trading at significantly lower levels. For instance, Tesla Inc. has fallen nearly 50 per cent from its peak, Nvidia Corp. is down 30 per cent and Amazon.com Inc. has declined 20 per cent. If the Federal Reserve pivots to an easing stance, these stocks could rebound strongly, making this a potentially opportune moment for bullish investors to increase exposure.
However, we remain more cautious and are actively seeking ways to position defensively while incorporating embedded downside protection. This approach has already paid off in areas such as our Russell 2000 exposure, where our put protection has established a 100 per cent floor through November 2025, safeguarding us against further declines. In volatile environments such as these, capital preservation becomes as critical as seeking returns.
