FTSE 100 and S&P 500 markets mayhem after Trump's tariffs
It looked like any other overcast day from the outside of Lombard Odier’s offices in Mayfair this week.
Yet inside the meeting rooms of the Swiss private bank, which has around £300bn in client assets, a quiet urgency has taken hold amid the turmoil in financial markets caused by Donald Trump’s reset of the world order on trade.
“We have been very careful to say to our clients, ‘don’t panic-sell out of equities,’” says Nannette Hechler-Fayd’herbe, the bank’s chief investment officer for EMEA.
“When you have no way to foresee, you become cautious on risk,” says Hechler-Fayd’herbe. “We de-risked and we did that by lowering our overweight on US equities back to neutral.”
The game has changed for the stock market, she says, as the “era of globalisation has come to its end” and trade switches to “a multi-polar world where big economic powers assert themselves and their interests more”.
The turmoil has pushed the bank’s assessments of opportunities back to the “fundamentals” of potential earnings growth, trends and valuations – and one country, in particular, has caught her eye.
“The one that is really sticking out because of the lower valuations as having a significantly higher expected total return would be the UK, because it also has lower volatility than the other markets,” Hechler-Fayd’herbe says.
“But we need the catalysts and these are back into the fundamentals. We need those earnings.”
The FTSE 100 is in full swing into earnings season. It comes as the index ends its second consecutive week of gains following the tariff turmoil unleashed by the US at the start of the month.
Other European markets have also enjoyed a boost, but investors say Britain’s stock indexes have some key characteristics which have attracted attention.
“Boring is back amid a world of uncertainty,” says Rory McPherson​​​​, the chief investment officer at Wren Sterling.
“As growth forecasts get lowered, so too do earnings forecasts for companies. This hits those companies with the more lofty growth expectations the hardest: tech being a prime example.
“The UK market is host to many companies which I’d affectionately describe as boring: it has big weightings to sectors such as consumer staples and healthcare, alongside banks and utilities.
“These are companies which generate lots of free cash flow, pay a good dividend and, importantly, are growing their dividends: this last feature is key in a world where inflation is likely to be higher via higher tariffs.”
Instead, investors were switching their portfolios to utilities companies, bonds, staples firms and UK stocks, the Wall Street giant said.
Indeed, the FTSE 100 has outperformed the S&P 500 by about 15pc in sterling terms so far this year.
Neil Wilson, of investment bank Saxo Bank, says: “A one-dimensional ‘sell US, buy UK’ approach is clearly too simplistic.
“The preference for growth over value has seen powerful returns for US equities compared to UK equities for over a decade.
“But the relative protection from higher-yielding UK stocks can be useful at times of severe market volatility.
“The value-oriented FTSE 100 offers a dividend yield about three times that of the S&P 500. With growth in the doldrums, value can shine.”
The appeal of the London stock market’s cheap valuations is illustrated by the make-up of the companies that have done well since April 2.
The best performer on the FTSE 100 has been private equity investor 3i Group, up by 15.4pc, but companies that would be considered exposed to the challenges posed by tariffs have also performed well.
Primark owner Associated British Foods has gained 15pc on the FTSE 100, while Sainsbury’s has gained 14.6pc and JD Sports has jumped 12.5pc.
On the mid-cap FTSE 250, the best performers have been retailers, with Dunelm up by 22pc, B&M up by 20.2pc and Currys up by 19.1pc.
George Lagarias, chief economist at Forvis Mazars, says its clients are looking to shift operations out of the US and into Europe.
“This year the big winner could be London,” says Lagarias. “London lost a lot of its lustre during Brexit but now it can be a European financial safe haven because, sure, you can go to Amsterdam or to Paris to do some work, but London has always been the financial hub. This is where deals are made.
“And suddenly you have questions about your ability to travel to the US. European tourists to the US have plummeted.
“So if you want to do a handshake deal, because deals don’t happen over Microsoft Teams, then London is the place now.”
Rachel Reeves, the Chancellor, met Scott Bessent, the US treasury secretary, in Washington on Friday, having emphasised that Britain was “not the cause” of the problems that the Trump administration is trying to address with tariffs.
At a dinner in Washington on Thursday, she accused China of manipulating its economy and building up “persistent trade surpluses” that are distorting global trade.Meanwhile, Britain, she said, had balanced trade with the US.
Lombard Odier’s Hechler-Fayd’herbe says Britain finds itself in a “fortunate position” with its small trade surplus and interests from the EU to secure “a very attractive trade agreement”.
“There’s so many different reasons why the US and the UK might be having mutual interests to strike good attractive trade agreements for both sides,” she says.
“What I’m looking forward to is, what type of trade agreement are we getting? And how is that going to impact the earnings?
“And from then on I would be prepared to take a more active view [on the UK] other than what we have globally.”
