Who said patience is a virtue?

Another decent day for US stocks has seen the Nasdaq return to positive territory for the year, defying what many perceive as an economic backdrop marked by increasing uncertainty due to Trump’s erratic tariff strategy. We have been suggesting for some time that the pain trade for many is upwards, which appears to hold true. Good news appears to be welcomed, while anything else is largely ignored for now, at least it would seem. The Organisation for Economic Co-operation and Development, or the OECD as most of us know it, is the latest body to cut its global growth forecasts, stating that the impact of the Republicans’ chaotic tariff policies is restraining investment and risks contributing to inflationary pressures.

Yesterday, China’s Manufacturing PMI came in below expectations, now marking the weakest level it has been in two years. Another potential consequence of the uncertain US economic policy is that the ISM Manufacturing PMI was softer than anticipated in May, indicating ongoing weakness in US factory activity. Supplier delivery lead times continued to increase in May, reaching their highest level since 2022, which may indicate ongoing supply chain issues and potentially higher prices. Imports contracted at the fastest pace since the financial crisis, whilst cost pressures remain. This suggests that the economic data is starting to reflect the impact of the tariff policies. The S&P 500 remains expensive relative to the past decade, particularly for growth stocks, at a time when we no longer have zero interest rates and 10-year US Treasuries offer yields of nearly 4.5%. Still, as they say, markets stay irrational longer than we can stay solvent, some strategists would argue that this current situation is not irrational.

What it does is make a portfolio manager’s life tricky: buy all the racy stuff and live with the volatility, or remain conservative and feel as if you’re missing one big party. I remember the run-up to the 2007 financial crisis; stocks were rising, and optimism was everywhere. At the start of 2007, the International Monetary Fund (IMF) had a positive outlook on the global economy. The IMF projected strong global growth, with the global economy expected to grow by 5.2% in both 2007 and 2008. Those who sat in the bond market looked foolish. Am I suggesting we are heading for a similar meltdown to 2007? No, what I think is that the markets always present opportunities, and being patient whilst waiting for those opportunities is tough at times, but it usually pays dividends in the long run.