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What we’re thinking about markets right now
Compared to February, markets don’t feel calm anymore, they feel complacent.
The bombing of Iran started the day after the last ICM and was unexpected to say the least. This meaningful escalation in geopolitical risk, has pushed oil prices sharply higher. Normally, you’d expect that to be uncomfortable for markets. Instead, equities, particularly in the US, have held up relatively well.
That disconnect is important.
The best explanation we could come up with is what’s being referred to as “TACO” — Trump Always Chickens Out. In other words, markets are assuming that, when push comes to shove, policymakers will step back before real damage is done.
That may prove correct. But it’s not a strategy, it’s an assumption.
At the same time, the UK outlook has deteriorated quite quickly. Higher energy costs, rising gilt yields and limited fiscal flexibility leave policymakers in a difficult position. A month ago, markets were pricing rate cuts, now they are pricing increases.
The US looks more resilient, but even there the balance of risks has shifted.
Put simply: the backdrop has become more fragile, but markets haven’t really priced that in yet.
What we reviewed and agreed
At our latest Investment Committee Meeting, we spent very little time on short-term performance and focused instead on what’s changed.
The conclusion was that this is not yet a moment for a big, sweeping move. But it is a moment to be slightly more cautious.
The key point was this: US equities haven’t fallen as much as other areas, despite being at the centre of a lot of the current risk. That suggests a degree of complacency in pricing.
So we made a small, deliberate adjustment in the Growth fund:
- We reduced S&P 500 exposure by 3%, taking total US equity from 30% down to 27%
- We are putting that 3% into ultra-short duration bonds
This isn’t about calling a market top.
It’s about recognising that:
- risks have increased,
- markets are assuming things will be fine (TACO),
- and we’re not being paid much to take that risk right now.
Importantly, we didn’t make the same change in the Defensive fund because it’s already positioned more cautiously.
What this means for you
Your portfolio remains fully invested, but slightly more balanced. We haven’t moved to a defensive position. We haven’t tried to time the market.
What we have done is take a small amount of risk off the table where it looked least well compensated, and moved it into something more flexible.
That gives us options. If markets continue higher, we still participate. If we do see the kind of pullback that feels increasingly possible, we’re in a better position to respond.
As ever, this isn’t about reacting to headlines. It’s about making measured decisions when the balance of risk and reward shifts.
We’ll continue to watch things closely and act where it makes sense.
Next Investment Committee Meeting
The next ICM is scheduled for 17 April.