Chronicle of impermanence
Even in the age of the most creative AIs, imagining Donald Trump as a Buddhist sage requires a fertile imagination. However, through his actions since the first days of his mandate, the American President has reminded the world of one of the founding concepts of this philosophy: anicca, impermanence. From inopportune declarations to eruptive executive orders, imposing tariffs on his closest partners only to suspend them, both the world and the markets are witnessing how Trump brings instability and transience to every situation.
The market scenarios that prevailed at the start of the year have been swept away like a sand mandala. American exceptionalism, which had thrived over the last 2 years and which most people imagined would continue, is now faltering. US growth is set to slow sharply in the first quarter at least, weighed down by a collapse in the trade balance caused by a surge in imports in anticipation of higher tariffs. Political uncertainty is dampening business and consumer confidence. The job market is once again in a fragile state, not least because of the public sector job cuts being carried out by Elon Musk’s DOGE. And all these factors have not left the markets unmoved. At -2.2%[1] since the start of the year, the S&P 500 is underperforming most global equity indices.
Conversely, Europe, where very few investors still held out hope at the start of the year, has returned to being the centre of attention. And for good reason – for once. An €800 billion European-wide defence investment plan, German fiscal stimulus more rapid and substantial than anticipated before the federal elections in February, and a return to political stability – at least for the time being – in France. Although Europe’s macroeconomic statistics remain mediocre at this stage, these bright prospects have led investors, burned by US instability, to reconsider it as an investment destination. And European markets, driven by the defence sector, lead the way, with the EuroStoxx up 12.8%1 since the start of the year.
On monetary policy too, the certainties have vanished. At the start of the year, the markets were anticipating just one rate cut by the US Federal Reserve (Fed) in 2025. The assumption that the Fed would leave its key rates unchanged this year was on the table for many observers, and no one even imagined the risk of a hike. A few weeks later, faced with risks to US growth, investors are now anticipating three cuts. As for the ECB, the way ahead seemed all mapped out, with continued rate cuts at least until the end of the first half of the year. But the fiscal bazooka announced by Germany, and the increase in growth prospects it implies, are now causing both investors and central bankers themselves to have doubts. A pause in monetary easing at future meetings now seems credible.
Everything has changed in terms of market leadership as well. Europe, shunned only a few months ago, is now whetting the appetite of market participants. Meanwhile the Magnificent Seven, the US technology giants that have dominated the markets for almost two and a half years, are now bringing up the rear, being down almost 11%1 since the start of the year.
In this unstable environment, investors certainly need to know how to adapt. But they must also be able put into practice another essential concept of Buddhism: upekkhā, equanimity. In the face of impermanence, equanimity enables us to avoid exaggerated emotional reactions and to consider everything equally. In the markets, this means taking a cold, hard look at each situation to identify the risks and opportunities, while bearing in mind that everything could change tomorrow.