Pete Wasko, Senior Portfolio Manager, Copia Capital
Despite the first half of 2025 being marked by significant market falls, the US launching strikes on nuclear facilities in Iran and tariffs at a 100-year high, markets appear to be performing well. With the first half of 2025 behind us, now is a good time to take stock of the current environment and consider how to navigate what’s ahead.
Market performance has been unexpectedly robust. MSCI Europe (ex. UK) rose nearly 14%, the FTSE 100 gained close to 10% in GBP, and the S&P 500 reached record highs when adjusted for dollars.
These gains come in spite of considerable geopolitical instability and market stress in the past few months. While the resilience of equity markets may appear surprising, few would be shocked to hear that volatility is likely to continue as we head into the second half of the year.
The American position
Although global growth has been a story of US stocks over the last two years, largely told by the Magnificent Seven mega-caps, US equity is no longer the only game in town. March saw a record decline in US equity allocation,[1] while foreign interest in bond auctions has dropped. The dollar has weakened significantly, impacting Treasuries and equities.
Trade tensions have been inflamed due to Donald Trump’s Liberation Day tariffs. The announcement on 2 April prompted a sell-off that pushed markets close to bear territory, although markets have recovered since. Implementation delays and Trump’s late-stage pivots on “reciprocal” tariffs to make room for dealmaking have led to growing expectations that Trump Always Chickens Out (TACO).
Nevertheless, tariffs remain high and are beginning to impact corporate sentiment. There is growing concern that, much like during the Covid pandemic, the full impact of these disruptions has yet to surface. Over time, the underlying pressures created by tariffs are expected to become more visible in economic data and could push up inflation in the second half of the year.
Concentration risk
A challenge faced by US equities is an unprecedented concentration risk. Nearly 40% of the S&P 500 is tied to just ten stocks.[2] As these mega-caps show signs of slowing, opportunities may shift to small- and mid-caps.
Historically, portfolios with equal weight exposure have typically performed well following similar periods of high concentration.[3]
The emergence of non-US AI competitors, such as China’s DeepSeek model, suggests innovation may be broadening. If AI innovation is no longer solely the domain of mega-caps, a wider group of companies, particularly in energy and infrastructure, could benefit.
Opportunities outside the US
The growing uncertainty in the US is prompting many investors to shift their focus elsewhere.
In Europe, competitive valuations, European Central Bank monetary easing and investment in areas like green policy, digitisation, AI and defence are creating attractive opportunities.
Although tariffs have created friction with America, it appears the worst-case scenario has been averted. Expected baseline tariffs of 30% have been cut to 15%, with markets responding positively on both sides of the Atlantic, and the Stoxx European 600 index rising to a 4-month high after the deal[4]. There have been market fluctuations since and EU leaders’ have also expressed reservations.[5] However while it may make conditions less attractive in the short term, the agreement suggests there may be room for future dealmaking and will likely reduce some uncertainty.
The UK too has seen improving business confidence, despite recent National Insurance hikes for businesses and persistent inflation.[6] Its services-heavy economy is less exposed to tariffs, and cheap valuations and discounts are proving attractive to investors. Expected falls in interest rates should also support more rate-sensitive smaller companies. Foreign investment is already rising, with increased private equity activity.
China is more resilient than many assume. It has limited exposure to the US, with exports to the American market constituting only a small portion of GDP.[7] In addition, its rare earth resources are vital to US manufacturing, providing significant leverage in tariff negotiations. Meanwhile, dollar weakness, which appears to be part of a longer-term trend, may favour emerging markets, though exposure to global supply chains through the dominance of manufacturing in their economy leaves them sensitive to tariffs.
Positioning for volatility
Copia’s risk barometer, which tracks equity prices, bond yields, interest rates and the gold price, remains in the red (-0.49 as of 2 July 2025). Although markets have been resilient to date, the signals suggest a cautious outlook.
While short-term uncertainty persists, the case for long-term investing, with diversification across regions and asset classes to provide protection and growth, remains strong.
This article is intended for regulated financial advisers and investment professionals only. Copia does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such.
[1] BoA Global Fund Manager Survey
[2] Clearbridge – Index concentration Vs. Subsequent 5-year performance of Equal vs Cap-weighted S&P 500
[6] Lloyds Business UK survey of expectations – Amati Investors
[7] CLSA, IMF DOTS, Oxford Economics, April 2024
12th August 2025
Q2 Review – Markets defy the headlines, but uncertainty remains
Pete Wasko, Senior Portfolio Manager, Copia Capital
Despite the first half of 2025 being marked by significant market falls, the US launching strikes on nuclear facilities in Iran and tariffs at a 100-year high, markets appear to be performing well. With the first half of 2025 behind us, now is a good time to take stock of the current environment and consider how to navigate what’s ahead.
Market performance has been unexpectedly robust. MSCI Europe (ex. UK) rose nearly 14%, the FTSE 100 gained close to 10% in GBP, and the S&P 500 reached record highs when adjusted for dollars.
These gains come in spite of considerable geopolitical instability and market stress in the past few months. While the resilience of equity markets may appear surprising, few would be shocked to hear that volatility is likely to continue as we head into the second half of the year.
The American position
Although global growth has been a story of US stocks over the last two years, largely told by the Magnificent Seven mega-caps, US equity is no longer the only game in town. March saw a record decline in US equity allocation,[1] while foreign interest in bond auctions has dropped. The dollar has weakened significantly, impacting Treasuries and equities.
Trade tensions have been inflamed due to Donald Trump’s Liberation Day tariffs. The announcement on 2 April prompted a sell-off that pushed markets close to bear territory, although markets have recovered since. Implementation delays and Trump’s late-stage pivots on “reciprocal” tariffs to make room for dealmaking have led to growing expectations that Trump Always Chickens Out (TACO).
Nevertheless, tariffs remain high and are beginning to impact corporate sentiment. There is growing concern that, much like during the Covid pandemic, the full impact of these disruptions has yet to surface. Over time, the underlying pressures created by tariffs are expected to become more visible in economic data and could push up inflation in the second half of the year.
Concentration risk
A challenge faced by US equities is an unprecedented concentration risk. Nearly 40% of the S&P 500 is tied to just ten stocks.[2] As these mega-caps show signs of slowing, opportunities may shift to small- and mid-caps.
Historically, portfolios with equal weight exposure have typically performed well following similar periods of high concentration.[3]
The emergence of non-US AI competitors, such as China’s DeepSeek model, suggests innovation may be broadening. If AI innovation is no longer solely the domain of mega-caps, a wider group of companies, particularly in energy and infrastructure, could benefit.
Opportunities outside the US
The growing uncertainty in the US is prompting many investors to shift their focus elsewhere.
In Europe, competitive valuations, European Central Bank monetary easing and investment in areas like green policy, digitisation, AI and defence are creating attractive opportunities.
Although tariffs have created friction with America, it appears the worst-case scenario has been averted. Expected baseline tariffs of 30% have been cut to 15%, with markets responding positively on both sides of the Atlantic, and the Stoxx European 600 index rising to a 4-month high after the deal[4]. There have been market fluctuations since and EU leaders’ have also expressed reservations.[5] However while it may make conditions less attractive in the short term, the agreement suggests there may be room for future dealmaking and will likely reduce some uncertainty.
The UK too has seen improving business confidence, despite recent National Insurance hikes for businesses and persistent inflation.[6] Its services-heavy economy is less exposed to tariffs, and cheap valuations and discounts are proving attractive to investors. Expected falls in interest rates should also support more rate-sensitive smaller companies. Foreign investment is already rising, with increased private equity activity.
China is more resilient than many assume. It has limited exposure to the US, with exports to the American market constituting only a small portion of GDP.[7] In addition, its rare earth resources are vital to US manufacturing, providing significant leverage in tariff negotiations. Meanwhile, dollar weakness, which appears to be part of a longer-term trend, may favour emerging markets, though exposure to global supply chains through the dominance of manufacturing in their economy leaves them sensitive to tariffs.
Positioning for volatility
Copia’s risk barometer, which tracks equity prices, bond yields, interest rates and the gold price, remains in the red (-0.49 as of 2 July 2025). Although markets have been resilient to date, the signals suggest a cautious outlook.
While short-term uncertainty persists, the case for long-term investing, with diversification across regions and asset classes to provide protection and growth, remains strong.
This article is intended for regulated financial advisers and investment professionals only. Copia does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such.
[1] BoA Global Fund Manager Survey
[2] Clearbridge – Index concentration Vs. Subsequent 5-year performance of Equal vs Cap-weighted S&P 500
[3] Ibid
[4] European stocks rise to 4-month high after US and EU strike tariff deal
[5] European stocks fall as US trade pact receives backlash from European leaders
[6] Lloyds Business UK survey of expectations – Amati Investors
[7] CLSA, IMF DOTS, Oxford Economics, April 2024