S&P 200 Best 10 - Active investing in Trumponomics requires risk management

Market Cycles

Global markets continued their decline through March, despite a brief relief bounce. US policy uncertainty and its global ripple effects remain the key drivers of the pullback. The rise of China’s AI models, DeepSeek and Manus, has intensified competition in the tech sector, challenging US dominance and prompting Microsoft to scale back AI capital expenditures.

Meanwhile, the US trade war is keeping both the economy and markets in flux, with tariffs being imposed, expanded, delayed, reversed, and countered in rapid succession. Major corporations favor long-term stability over abrupt policy shifts, making large-scale supply chain relocations to the US unlikely, despite post-election investment pledges.

The US government is pushing for lower taxes, interest rates, and a weaker currency, but with high debt and deficits—and no recession or war cycle—the Fed and markets are unlikely to comply. Tariffs have shifted from a negotiation tool to a long-term policy stance, adding further complexity to global trade.

At the same time, Japan’s carry trade is beginning to unwind as bond yields reach pre-GFC highs, strengthening the yen and adding pressure to an already weakening US market. All major US indices and the Australian market have now fallen over 10% from their peaks. With global passive funds holding significant equity positions, their actions in the coming weeks will be critical. If they fail to support the market soon, the downturn could accelerate.

Macro Cycles

Frequent policy shifts by the US government are making long-term business and government planning increasingly difficult. Consumer sentiment has dropped sharply amid fears of another inflation surge, while business confidence is weakening as high living costs and recession concerns curb consumer spending.

Geopolitical tensions are escalating, with the US adopting a more pro-Russia stance against the EU, launching airstrikes on Yemen, and warning Iran over its support for the Houthis. Meanwhile, media speculation about potential US takeovers of Canada and Greenland has resurfaced, despite no tangible actions. These moves suggest a broader strategy of diverting attention from growing domestic policy challenges.

US policy shifts continue to drive global economic uncertainty, with the unwinding of the Japanese carry trade adding to market volatility. The US appears to be pursuing economic gains at the expense of other nations through trade conflicts. However, with global growth already sluggish, retaliatory measures from affected economies could further slow worldwide economic expansion. Meanwhile, turbulence in Japan’s bond and currency markets is likely to prompt the BOJ to accelerate intervention, adding further pressure on US markets as the carry trade unwinds.

Data Analytics and AI takeaway

Dividends have become the best-performer, with value stocks benefiting from the recovery cycle. Growth continues to lag and may struggle further in a market downturn. If global mega passive funds fail to defend the market in line with the seasonal mid-March low, a brief relief bounce could be followed by increased downside risk.

Portfolio Strategy

Global economic uncertainty, driven by US market trends, is creating ripple effects across financial markets. The NASDAQ, with its global focus, and the domestically oriented RUSSELL have both declined 15-20% from their peaks, while US and Australian markets have fallen by 10%. Currency fluctuations are making EU markets appear more attractive than the US, while China maintains stability through targeted stimulus without excessive intervention.

In Australia, a federal election could be called within weeks, as the opposition leader struggles in the media following a cyclone. The Australian government may see the combination of economic resilience amid global uncertainty and political weakness in the opposition as an opportunity to move forward with an election. This raises uncertainty for sectors tied to consumer spending and asset prices.

With global passive funds entering a key seasonal market phase, their activity will play a critical role in preventing further market declines. Given the heightened market risk, investors should focus on short-term risk management strategies.

S&P 200 Best 10 Model Portfolio

The best performers year to date in the S&P 200 Best 10 are: Regis Resources (ASX: RRL), Vault Minerals (ASX: VAU), Northern Star Resources (ASX: NST) and Karoon Energy (ASX: KAR).

Note: DDA may or may not have made changes to the model holdings since last update. The data driven model portfolios will continue to evolve with the economic and market cycles.