What a difference two months make. While markets were ecstatic after Donald Trump’s election in November, now that he’s moved back into the White House, they are grappling with the impact of a strong US dollar, underperformance of non-US equity markets, and rising US long-term rates.
These dynamics reflect the market's anticipation of tariffs and inflationary policies, which have been flagged by the incoming administration since the election victory. Our analysis shows today’s economic landscape most closely mirrors that of May and June 2001, when the US and large parts of Europe were mired in recession after the ‘Dot Com’ bubble burst in 2000, the dollar was strong and corporate earnings disappointed.
During times when macro factors dominate market returns, we rely on our proprietary macro timing models to gain deeper insights into the prevailing environment. Our Macroscope model examines historical market regimes to better understand future dynamics by analysing risk factors and sectors. This helps us identify recurring patterns and predict how current macroeconomic conditions could align with political events.
Notable shift to anti-risk
The latest reading marks a notable shift from the one just prior to the US election, when markets were focused on upcoming Federal Reserve (‘Fed’) rate cuts and the highly uncertain outcome of the vote. The MacroScope model flagged historical periods where stock markets were supported by lower interest rates, such as July 2019 and mid-2020, as the most similar regimes.
Figure 1: Our Macroscope has turned anti-risk, reducing positive exposure to Beta
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The model’s current positioning has turned more anti-risk, significantly increasing its negative exposure to Residual Volatility and reducing its positive exposure to Beta. However, it has maintained its bullish stance on Momentum, a consistent theme throughout the year. This trend is largely explained by the current environment being the opposite of Momentum crash periods, such as March 2009 and October 2001, where markets staged strong rebounds following downturns.
From an industry perspective, the model’s predictions show significant changes compared to the pre-election period. Healthcare services and oil & gas companies have seen the largest improvement in return prospects, while Internet companies, airlines, thrifts, and mortgage finance firms have experienced further declines in projected returns.
History doesn’t repeat itself, but it often rhymes. While we may not quite be heading for a dire 2001-style period just yet, our model is taking a much more sober view of what 2025 may have in store.
A silver, gold and copper lining
Speaking of Donald Trump being back in the White House, and markets bracing for volatility…
Perhaps unsurprisingly, this uncertainty is bolstering parts of the commodities markets for their safe haven attributes, while others may be due a revival, as structural demands outweigh policy disappointments.
Gold and silver will likely remain the ultimate crisis hedge. Both metals surged in 2024. The price of gold advanced almost 30% and silver gained over 20%, as investors sought refuge amid interest rate cuts, conflicts escalated in the Middle East and Ukraine, and the return of the Trump administration reignited fears of a trade war with China. We believe silver is set to benefit not just from its historical role as a hedge but also from its industrial applications in sectors like solar power and electronics.
Gold and silver equities, in particular, may offer an interesting opportunity. While gold equities have lagged gold for several years, investors should remember that gold equities often outperform the underlying commodity in gold bull markets. The gold rally over the last few years has been unique, with central banks buying physical gold to diversify away from the US dollar, even as interest rates were moving higher. On the other hand, ‘paper’ gold flows showed steady outflows post-2020. This trend persisted until 2024, when rates started to come down and flows started going back into the paper gold market. We believe this could be a potential trigger for precious metal equities to recover from their relative underperformance.
Figure 2: Cumulative money flow into GLD ETF highlights gold continues to shine
The SPDR Gold Shares ETF (GLD) tracks the price of gold bullion in the over-the-counter (OTC) market.
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Copper, on the other hand, tells a longer-term story. Last year’s weakness — driven by China’s underwhelming stimulus measures and a global manufacturing slowdown — masked the structural demand underpinning the metal. Copper is essential for everything from renewable energy infrastructure to AI-driven energy consumption.
As the world moves towards electrification and grid modernisation, copper’s role is only becoming more critical. A manufacturing recovery or Chinese restocking in 2025 could spark a significant rally.
Elsewhere in commodities, the picture is mixed. Natural gas ended 2024 on a high note as the weather turned colder. The longer-term outlook for North American natural gas is promising, as new liquefied natural gas (LNG) export facilities allow surplus gas to be shipped to meet strong demand in global markets. Crude oil, however, struggled under the weight of oversupply and tepid demand, with geopolitical tensions failing to disrupt markets meaningfully. Renewables and power remain compelling despite political risks, driven by the accelerating adoption of AI and the growing urgency around energy shortages.
With 2025 starting off on increased geopolitical uncertainty, commodities offer investors the chance to position their portfolios for both, protection and growth.
All data Bloomberg unless otherwise stated.
With contributions from Valerie Xiang, a Portfolio Manager at Man Numeric and Albert Chu, a Natural Resources Portfolio Manager at Man Group.
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