Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
Investor Content Strategist
China and US do the tariff dance; Trump doubles steel tariffs Broad risk-off tone to equity markets on trade/geopolitics Rolls-Royce, BAE Systems rise as UK unveils defence boost Palantir jumps as Trump taps company to harness Americans’ data IAG lands as top FTSE 100 stock during May This content is marketing material. This article is not investment advice, capital is at risk. Big Picture: It’s the old tariff two-step again, the dance traders and investors are getting used to/bored of in equal measure. Trump on Friday said China had violated the Swiss truce agreement; China fired back with the same accusation against the US...markets are risk off this morning after notching a solid run in May. Doubling of US steel tariffs is also weighing on market sentiment, with stock markets trending weaker this morning in Europe after a decline across Asian markets overnight. Ukraine carried out a massive drone strike on Russian planes ahead of peace talks in Turkey. Some geopolitical tensions lifted gold and oil, with crude up 2% despite plans for OPEC+ to increase output for a third successive month in July. Despite some risk-off moves more generally, the FTSE was holding up a touch better with some help from defence stocks BAE Systems and Rolls Royce as the government outlines plans to boost defence spending...assume that 2.5% of GDP is now the baseline not the ceiling going forward with Nato calling for 3.5%. Already a corner of strength for the market it could have further to run. Elsewhere, BP is up a bit despite rumours it’s not getting interest in Castrol above $8bn as crude prices are higher. Fresnillo rose 2% on higher gold and silver prices. On the trade war, China and America are shooting accusations about violating the early May agreement struck in Geneva. It’s all the usual noise. U.S. National Economic Council Director Kevin Hassett said Trump and Chinese President Xi Jinping might discuss trade this week...but whether this happens or not is up for debate. Also weighing on sentiment, Trump said he will increase US steel and aluminium tariffs from 25% to 50% starting June 4th. And we had that drone strike on Russia – Ukraine looking to come into those peace talks in Turkey with a stronger hand. But...we’re coming off a good run - Wall Street posted its best monthly gain since November 2023, with the S&P 500 up 6.2% over the course of May, while the Nasdaq rose over 9% for the month...Mag 7 still driving a lot here. The FTSE 100 also rose almost 200pts for the month, enjoying its best month in four. European equities ended May sharply higher, STOXX 600 up 4%, DAX +7.1%—best since January...we are in the zone I’ve talked about before – past peak pessimism but past peak optimism...markets seem to be pricing a best case scenario from tariffs right now – 10% across the board and 30% for China. Palantir stock jumped over 7% with reports the Trump administration has tapped the company to compile a mega-database to spy on American citizens. The NYT says “detailed portraits of Americans based on government data is not just a pipe dream”. China's Manufacturing PMI rose to 49.5 in May 2025, still contracting but matching expectations. Output rebounded, while new orders, foreign sales, and employment declined slower. Prices dropped sharply, and business confidence improved from April's low. Coming up this week we have a couple of market-moving events from the US with Fed chair Jay Powell to speak and nonfarm payrolls data due at the end of the week. Major names scheduled to report this week include CrowdStrike (CRWD), Hewlett Packard Enterprise (HPE), and Broadcom (AVGO). Finally, IAG flew to the top of the FTSE 100 last month, climbing over 25% during May to make it the top-performing blue chip stock after strong earnings and an easing in tariff worries.Stocks Kick Off June Lower after Strong May Rally