Han Dieperink: New records in 2025

June 6, 2025

^{This column was originally written in Dutch. This is an English translation.}

Recent market turbulence following Trump's tariff policy has created a divide in the investment world: some see a rapid recovery, others fear more serious economic impact. Which scenario will prevail?

By Han Dieperink, written in a personal capacity

After the turbulent start to 2025, opinions on the economic outlook remain sharply divided. The announcement of reciprocal tariffs in response to Trump's “Liberation Day” has caused a seismic shift in market sentiment, but the fundamental question remains: are we heading for a temporary correction or a prolonged downward spiral?

Optimists emphasise that market corrections are a normal and even healthy part of a bull market. The recent volatility has all the hallmarks of a classic correction: a sudden drop from record highs, rapid deterioration in sentiment, and a clear “fear narrative” surrounding import tariffs. According to this view, the market has already priced in a bad scenario, leaving room for positive surprises when reality turns out to be less gloomy. More cautious analysts, however, point to the unique scale of the announced tariffs. Although they will ultimately have a deflationary effect, they could first cause a significant inflationary shock, putting the Fed in a difficult position.

A mistimed interest rate cut could fuel inflation, while waiting too long could exacerbate the economic slowdown. Several factors point to a better second half of the year. First, sentiment has become extremely negative, which is historically a contrarian indicator.

Second, the stock market has already priced in a lot of bad news. Current prices reflect a scenario in which earnings stagnate in 2025 and only return to growth in 2026. Third, inflation has been brought under control ahead of the rate shock. Core inflation has stabilised and long-term inflation expectations remain anchored. This gives the Fed room to cut interest rates later this year. Fourthly, there are signs of softening in rate policy. The 90-day delay points to a pragmatic approach and a more moderate outcome. Finally, consumers remain an anchor for the economy for the time being. Solid balance sheets, relatively healthy debt levels and the positive wealth effects from rising equity and house prices offer some protection against economic headwinds. However, China's response to the US tariffs does pose a crucial risk. China has significantly reduced its dependence on the US market since the first Trump tariffs were imposed.

Chinese exports to the US have fallen from 22% to 14% of total Chinese exports and represent only 2.8% of Chinese GDP. This reduced importance, combined with a stabilising property market, gives China more room to resist tariff pressure.

Many stocks outside the United States and value stocks are already outperforming US technology giants, a trend that could continue. However, technology stocks still have solid fundamentals and could see a V-shaped recovery once the Fed starts cutting interest rates, which is expected in the second half of 2025. The extremely pessimistic sentiment creates opportunities for positive surprises. For long-term investors, the current correction is an opportunity to take advantage of attractive valuations.

The contrast between optimism and realism about the trade war will continue to influence the markets, but history teaches us that markets always recover. When the dust settles, we are likely to see that the market optimists were right and that we can even expect new records before the end of 2025.