Events this year have made it clear that we are living in an unpredictable and complex world. For years, investors have operated under the assumption that the US would lead growth in developed markets, that policy changes were incremental and that economic disruptions were cyclical. However, a global transformation is underway. Investors should consider the implications of various outcomes for the broader macro environment, including US trade tariffs and the potential end of US exceptionalism, and how these factors will impact their investments.
Despite the considerable uncertainty in the world, these uncertainties can also present opportunities if investors know where to look. In these volatile times, the case for diversifying portfolios is more compelling than ever.
The macro environment and identifying opportunities
Investors should not overlook the developments in the macro environment, as they are crucial when evaluating opportunities across various sectors, companies and regions. While there is no crystal ball to offer a definitive answer, it is important to consider key factors such as gross domestic product (GDP) growth expectations, the trajectory of inflation and the potential outcomes of different scenarios.
In times of market uncertainty, such as we are experiencing today, it is crucial to continuously recalibrate for various potential scenarios. This involves having a clear grasp of the current key drivers and how they differ from a year ago, alongside delineating what a bull market case would entail compared to a bear market case. By attempting to identify those who are resilient across different scenarios – be it new tariffs, fluctuations in oil prices or changes in macroeconomics and interest rates – you are ultimately seeking the most favourable risk opportunities.
Understanding the outcomes and opportunities with US trade tariffs
While it is certain that “Liberation Day” tariffs will rise, the extent of the increase remains unclear. Scenario analysis shows the tariff burden will climb from 2 per cent to over 14 per cent, affecting both growth and inflation. Regardless of the exact figure, higher tariffs are inevitable.
Similarly, there is considerable uncertainty regarding the impact of tariffs on the cost of conducting business across the major trading regions globally. With the constantly shifting stance on these tariffs, one certainty is that companies are responding by reassessing their supply chains, evaluating their competitive advantage against other industry players and contemplating their future investment decisions.
What our research indicates is that there is more concern for developed economies as opposed to emerging economies. During the US election last year, emerging economies were perceived as the most vulnerable to economic and policy shifts in the United States. However, the situation has shifted, with potential changes from tariffs now exerting more pressure on the developed world. Conversely, emerging markets appear to be better equipped to handle potential tariff changes, presenting opportunities for investors to generate alpha in these markets.
The end of US exceptionalism?
Many investors are evaluating whether the era of US exceptionalism is drawing to a close and considering the implications for current and future investment strategies. Over the past 15 years, the United States has emerged as an economic and financial leader, supported by stronger GDP growth relative to other developed markets and notable increases in profitability and returns on capital. This trend has been driven in part by the rise of hyperscale companies – now dominant constituents of the S&P index – including technology firms such as Nvidia and communication companies such as Broadcom. The robust earnings growth delivered by these organisations has contributed significantly to market performance overall. However, a key consideration for investors is whether these mega-cap companies can maintain their momentum and continue to generate sustainable growth.
Looking at these companies from a multi-year outlook, they are well protected from a moat perspective and have solid market share. However, investors should also consider whether they will continue to have an innovative edge and the capital to reinvest down the track. The assumption that those returns and growth will continue to outstrip the rest of the world is starting to become a little bit more tenuous. Expectations for US GDP growth are being downgraded, while treasury markets are jittery with high fiscal deficits looking likely to continue. The rapid price recovery from April’s downturn coupled with the marking down of earnings expectations mean that valuation multiples have risen over 2025.
Investors should also be reflecting on what is happening in the rest of the world and assess whether expectations in other markets are improving or declining. The outlook for Europe is promising, buoyed by fiscal and monetary policy stimulus across numerous European nations. For instance, Germany’s recent announcements regarding infrastructure and defence spending bolster national development and foster a favourable fiscal climate. Additionally, there is a supportive monetary environment characterised by enhanced cohesion throughout Europe, achieved through increased efficiencies, reduced bureaucracy and efforts to cultivate a more innovative corporate landscape. Valuations are reasonable and companies are demonstrating strong cash flows, all of which signal a positive investment environment.
Similarly, when evaluating emerging markets, there is a notable combination of attractive valuations and, in some cases, advantages arising from a weaker US dollar. Additionally, certain markets, such as China, are demonstrating promising innovation cycles. The revitalisation observed in 2025, exemplified by organisations like DeepSeek introducing potentially market-leading products, highlights significant opportunities for investors. These developments warrant increased optimism and consideration for investment in diverse global regions.
Risk and diversification
While uncertainty can be daunting, it also presents opportunities for investment and global diversification. Maintaining exposure to the US remains important due to the strength and reputation of its companies. However, ongoing questions regarding the US economy and the sustainability of mega-cap leadership suggest that investors should also consider diversifying into companies in other regions worldwide.
As we navigate ongoing market volatility and macroeconomic uncertainty, investors should seize this opportunity to identify and invest in companies with resilient cash flows, robust balance sheets and potential for reinvestment. This is the part of the market that should excite investors and now is an opportune moment to explore global investment opportunities.
Lukasz de Pourbaix, global cross-asset specialist, Fidelity International
