Market Update 15th September 2025
Surface Tension
It has been a strange year so far. Apart from the US dollar, pretty much every major market and asset class I can think of is up – in some cases by quite a lot, but this seems to be despite rather than because of the global background.
During March – just before Trump’s April 2nd initial tariff announcement, Global high yield credit spreads (a reasonable gauge of risk tolerance) rose from around 300bps to 350bps. They widened very quickly to just over 450bps before coming down almost as fast from April 9th when Trump announced a pause, and are now confusingly lower than when we started, down to 287bps as I write. This is close to as low as they have ever been.
In simple terms you could say the market appears to perceive less risk now than it did pre-tariffs and this doesn’t make much sense at face value.
There is an even more pronounced story in equities. Global equities are over 17% higher today than before April 2nd and over 30% higher than the lows on April 9th. The 30% number is in a similar ballpark to the rallies post Covid in 2020 and post GFC in 2009.
But tariffs are in place and still happening. Okay, not the random numbers Trump was saying out loud in the early days but happening all the same and the exact outcome remains uncertain. Equity markets usually react badly to uncertainty.
In the meantime, Trump has been openly questioning the competence of the Fed chairman, and more recently trying to sack another governor – bringing the independence of the Fed into question.
Elsewhere the UK Deputy Prime Minister has resigned, the French Prime minister lost a vote of no confidence. Wars continue around the world. The US is sinking boats off the coast of Venezuela. Only last week Poland – a NATO member – got involved, shooting down Russian drones in its airspace. We used to worry about Taiwan.
How would we assess the impact of tariffs? Where would they start to show?
US inflation numbers came out on Thursday last week and were in line with consensus with a core CPI increase of 0.3% month on month – the same as in July. This gives an annualised number of 3.1%. This suggests there is little impact of tariffs showing in US consumer price data so far.
However, they also don’t appear to be creating US manufacturing jobs yet either, which is supposed to be part of the idea. Unemployment has risen during the summer, while industrial production is down.
It is early days. There is a wide range of feedback from surveys of the US based companies themselves – uncertainty, different reactions from different suppliers, margins down, some passing on price rises where they can, some having to reduce their workforce.
These companies are supposed to be the beneficiaries of the policies. I saw an awkward looking video of all the big tech CEOs at a dinner with Trump and they each took it in turns to thank the great leader at length for being there.
It’s very well known that the big US tech companies have been dominating equity markets for some time now. But the strong performance of a small number of companies is hiding a wide variation in performance under the surface.
Needless to say there are a number of Mag 7 ETFs available. After a shaky start to the year, one of these is up 55% from the April 9th low and is now up about 15% YTD although it didn’t break even on the year until the end of June. A US mid cap ETF on the other hand is up only about 6% YTD having been down heavily in the early/middle part of the year.
In a similar way, it might look like the high yield bond market in aggregate is shrugging off an increased level of risk. But if we look a bit more closely, we can see that different parts of the high yield bond market are reacting differently.
If we look at European CCC bonds for example – at the most risky end of credit ratings and likely to be at risk from tariffs – there is a different picture. Although these bonds also saw short term volatility – rising and falling in early April, the move was much less dramatic and spreads have widened again since. They are now just over 1400bps which is higher than the pre-tariff level and is round about the middle of their long term post-GFC range.
The high yield market has matured somewhat even in the relatively recent past – you don’t hear people talking about “junk” bonds much anymore. Thames Water is high yield, plenty of well-known airlines and cruise companies are high yield, Netflix was high yield until quite recently.
It’s a long way from one end of the high yield market to the other. You will know some of the CCC names as well but only because it was headline news when they collapsed. Thomas Cook and Cineworld in the fairly recent past for example.
There are not always neat explanations for everything and Innovation probably wouldn’t be clever enough if there was, but there is a clearer picture to be found in the details than the headlines. I believe it also pays to take an active approach to these issues – now more than ever – rather than indiscriminately buying “the market”.
Robert Fullerton – Senior Research Analyst
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