This change in narrative regarding the US-China trade war has, at least for now, renewed investor confidence in the market and prompted some to take a more risk-on approach to investing in US equities. However, experts caution that euphoria, rather than fundamentals, has been driving the recent rally.
“The market’s positive reaction wasn’t due to new economic data or improved earnings; it was about tone. The shift from confrontation to cooperation gave risk assets a lift. But for long-term investors, the tone is fleeting,” says Charu Chanana, Chief Investment Strategist at Saxo Bank.
In April, US trade tensions significantly impacted market sentiment, with President Trump's shifting tariff stance triggering record intraday swings in the S&P 500 and the Nasdaq Composite. On April 2, also known as ‘Liberation Day,’ when Trump announced a slew of tariffs on every country in the world, the US markets saw an immediate negative knee-jerk reaction. The S&P 500 plunged over 10% on April 3 and April 4, while the Nasdaq also fell about 11.2% over the two days.
Days later, Trump’s 90-day cutback on tariffs sparked the S&P 500 and Nasdaq to jump 9.52% and 12.16% respectively on April 9, marking their largest-ever single-day closing gains.
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Market noise and knee-jerk reactions drive volatility in the investment market. “Markets may cheer headlines, but fundamentals still rule,” says Chanana. Investors should stick to timeless principles endorsed by the world’s top investors. As Warren Buffett said in 2013: “Forming macro opinions or listening to market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important.”
While there is some relief from US-China trade tensions for now, investors should not overlook the challenges ahead. It would be wise to disregard market noise and refrain from basing investment decisions on short-term hype.
“The trade truce may hold for now, but the tariffs announced, many still around 30%, are not disappearing. These are sticky policies that can reshape supply chains, corporate margins and even inflation. In fact, the market is now preparing for a second shock: weaker economic and earnings data in 3Q as tariffs bite,” says Chanana.
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She advises investors to be “agile and active” with their portfolios and to diversify into alternative markets, such as Europe, while increasing exposure to structural megatrends to reduce dependence on any single country’s policy outcomes as we head into the second half of this year.
Europe’s three 'I's
Amid April's peak uncertainty, Europe emerged as a safer growth alternative to the US market and for good reason. For years, economic activity in the Eurozone lagged behind that of the US, largely due to conservative fiscal policies where countries restrained spending to maintain balanced budgets.
The sentiment is gradually improving as Europe faces the reality of having to rely more on its own resources. “A few years back, the Russian invasion of Ukraine called into question Europe’s over-reliance on Russia for natural gas and energy supplies. On top of that, the more recent aggressive trade policy steps from Trump further emphasised the question of how much Europe can depend on the global supply chain. So these realisations in Europe have started to bring massive shifts to their fiscal policy,” says Chanana.
Europe’s shift in fiscal policy serves as a key catalyst in its growth narrative, with increased investment across the continent poised to unlock a range of mid- to long-term opportunities for investors.
Chanana breaks down Europe’s investment themes into what she refers to as the three Is: infrastructure, independence and innovation. In this context, investments in infrastructure are crucial for Europe's growth. They modernise transport, enhance communication networks, develop cities and increase the economy's production capacity. The European Union (EU) is focused on fostering sustainable growth, especially in renewable energy and presents numerous opportunities to invest in long-term, socially beneficial infrastructure projects.
Renewable energy has been a key focus of Europe’s energy plans as they strive to reduce their reliance on Russian fossil fuels and become a carbon-neutral continent by 2050.
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According to the revised Renewable Energy Directive of 2023, the European Commission aims to have 42.5% of the continent’s energy production come from renewable sources by 2030, which means an additional capacity of 600 gigawatts (GW) will need to be added by then compared to 2024 levels.
Besides energy, the Commission is also prioritising transport infrastructure to connect Europe better. In 2024, the EU allocated EUR7 billion ($10.15 billion) towards 134 transport projects aimed at improving connectivity while achieving climate objectives by enhancing and modernising the EU's network of railways, inland waterways and maritime routes along the Trans-European Transport Network.
Secondly, Europe’s investment in independence primarily concerns its security and military independence as it seeks to reduce its reliance on the US for military support.
For decades after winning the Second World War, the US has been one of the biggest contributors to the EU’s defence. According to a 2024 report by Mario Draghi, a former Italian Prime Minister and President of the European Central Bank, from mid-2022 to mid-2023, 63% of all EU defence contracts were awarded to US companies.
Furthermore, the US was the highest contributor to the North Atlantic Treaty Organisation’s (Nato) 2025 budget, tied with Germany, which contributed approximately EUR603.4 million towards their common budget.
In contrast, Europeans have been laggards in contributing to their defence budget and are only now starting to step up and take charge of their defence capabilities, following Washington's clear statement at the beginning of this year that it can no longer prioritise Europe's security and that Europe must significantly increase its military spending.
Germany’s fiscal policy shift has been one of the most significant within the region so far, with plans to ease the ‘debt brake’ imposed by then-Chancellor Angela Merkel in 2009, which specified that the federal government could only borrow 0.35% of its economic output.
This shift saw Germany announcing plans to spend approximately EUR1 trillion on defence and infrastructure, which includes a defence spending target of about 5% of its GDP (approximately EUR200 billion a year), as indicated by the current government led by Chancellor Friedrich Merz.
Finally, Chanana believes that investment in innovation is something Europe should prioritise to address their over-reliance on other countries for their supply chain.
“With all these tariff policies and supply chain shifts, Europe has realised that there's a huge dependence on the US and China in terms of technology. Thus, it makes sense to make supply chains in technology more resilient and hence, innovation in technology is a key space to watch in Europe,” she adds.
The European Commission also recognises the need for Europe to enhance its competitiveness in the global race for technology. In February, the Commission launched the Investai initiative to mobilise EUR200 billion of investment in AI at the AI Action Summit in Paris.
Along with the EUR200 billion allocated for investment in AI, the initiative will involve setting up a new fund of EUR20 billion for AI gigafactories. This large-scale AI infrastructure is necessary to enable the open and collaborative development of the most complex AI models, ultimately making Europe a hub for AI.
“AI will improve our healthcare, spur our research and innovation and boost our competitiveness. We want AI to be a force for good and for growth through our own European approach, based on openness, cooperation and excellent talent,” says Ursula von der Leyen, President of the European Commission, at the summit in Paris.
Alternative markets
In addition to Europe, there are substantial opportunities in other alternative markets, particularly within emerging economies. India and China, for example, have garnered significant attention from market observers. As Chanana notes, both nations offer compelling growth prospects that have attracted increasing levels of investment in recent years.
China's tech and automation drive will also continue as it builds on its capabilities, aiming for self-sufficiency, particularly in AI hardware. “China is really doing well in catching up with US tech companies and they have a huge domestic market. So I think that given the undervaluation and the kind of resources they have, I think there is a very positive structural story there,” she adds.
Investing in India has also been highlighted as a long term growth story as it remains one of the largest, fastest growing markets in the world and has large potential in tapping and penetrating its very large domestic market across different sectors like the financial services and tech sectors given their aim of working towards a self-sufficient economy.
Besides the two, Chanana also notes that the Latin American markets have received some attention from investors, which can be mainly attributed to their commodity exposure.
“Brazil and Mexico have been seeing some inflows as well as investors look to diversify. Because when supply chains become more diversified, commodities are the first thing you want to make sure you have a supply of. Like energy, food and now semiconductor chips, which have now become a commodity.”
Uncertainty has always impacted the world and it will continue to do so. Yet, those who stayed invested, particularly in diversified portfolios of quality assets, have consistently outperformed those who tried to time every market move.
Chanana advises investors to use moments of uncertainty to reassess their asset allocations, diversify investments and identify and capitalise on structural megatrends that are here to stay.
She adds: “The broadest advice I can give is to be more active and just look out for structural shifts, because the global economy could be in a very different place than where it has been for decades. Exposure to growing ongoing themes like AI and clean energy can position portfolios for sustained growth beyond short-term disruptions.”
