Markets are searching for their direction: Ready for new adventures?

2025 brings investors through all sorts of moods. Five months of upswings, downswings, joys, and sorrows alternating with Donald Trump's measures and their impact on the global economy. Investors constantly seek to gauge the direction of the markets, where some warn that they may have given their all, although they still harbor opportunities. Just as the tariff front seemed to be calming down, doubts now arise about the US financial statements or the threat of 50% tariffs on Europe. Whether willing or not, new adventures are on the horizon.

The unfinished 2025 novel currently has three chapters. From January to April, Trump's arrival at the White House was celebrated. On April 2, everything went awry with his "liberation day" and global tariffs. The indices sank more than 10% in just a few sessions. When he reversed course a week later, they broke out of record lows with rebounds of 20%. A 90-day halt that was a godsend... overdone? Stocks, especially in the US, are back to square one. On its roller coaster ride, Wall Street is still trying to recover so far this year (see chart). "We're back to where we were before the US elections. The optimism that had been felt with Donald Trump's arrival, the pessimism with the measures he announced, has been erased," notes Xavier Brun, director of equities at Trea AM.

"Today we are like before the US elections," says Brun (Trea AM)

The recent recovery has brought some joy, but it may be hanging on by a thread. They're once again hovering around historic highs, putting pressure on valuations. But neither the shadow of tariffs nor the uncertainty is disappearing. "Tariffs affect confidence, and that ends up affecting everything. There's an underlying situation that will change for the worse in the second half of the year, which will be complicated. With downward revisions to results, less growth, and more inflation, with rates that will be lower than expected," warns Ramón Forcada, director of analysis at Bankinter. Hence, he doesn't see the increases as justified. "We don't understand why stock markets are rising in this context. It's difficult to find firm support. They should always rise based on subjective values, and now it's very difficult: expected profits aren't a factor, nor is growth, nor inflation... I don't know if the uncertainty is causing complacency." One factor that is reiterated is that there is a lot of liquidity. For example, the latest surge in US indices is driven more by retail than institutional momentum, according to Trea AM.

A typical question is where to position oneself, whether in Europe or the US. A choice that shouldn't translate into betting everything on one or the other, warns the sector. "With demanding valuations, people are looking for returns in fixed income or European stocks, where it seems they will do better this year," Brun asserts. "In the short term, Europe can do better because it has a positive flow from the large investment houses—Morgan Stanley, JP Morgan, Bank of America...—attractive valuations, comparatively cheaper than those in the US, and growth expectations that boost profits," he comments. That is, as long as the tariff front doesn't disrupt things. Across the pond, "multiples are above average, which requires demanding growth." In the medium to long term, however, "in the US we see more value, although being more selective." He argues for a better underlying trend as opposed to a Europe more guided by cyclical conditions.

And will they rise much further? Forcada remains conservative. He points out that earnings per share in the EuroStoxx 600 are expected to rise by 3.7% for the year, but they're already up 8%. "That's already excessive." Indexes like the German Dax and the Ibex 35 have gained nearly 20% for the year. "We don't see any further growth in the Ibex 35; it could even be overvalued, surpassing 13,000 points."

"The underlying situation will worsen in the second half of the year," they believe at Bankinter.

Regarding strategies, Bankinter is committed to being "more defensive than before." "We're not heading for a recession, but we do need to reduce risk exposure and see how the year goes." They expect strong performances in banking, cybersecurity, and defense. If they're looking for a niche, they highlight utilities and infrastructure. Trea AM mentions healthcare and pharmaceuticals.

So far, the results are holding up, but we'll have to wait for the second-quarter releases to begin to see the impact of tariffs. "We can expect both negative and positive surprises from strong companies," notes the Bestinver investment team. Amid concerns, the answer lies in remaining selective. They believe the tariffs were widespread, in some cases excessive, and have left opportunities across the board. "When the market is surprised by something, it thinks about the worst-case scenario. It falls and hits everything... As the unknowns clear up, it rises. It always happens," they argue. "With such globalized trade chains, the downside of tariffs is that uncertainty has transformed into volatility in many sectors; the upside is that you can buy cheap. There are so many good opportunities in so many sectors..."

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Focused on the strategy of value investing , Bestinver seeks undervalued companies with a long-term vision, popularized by Warren Buffett. "Today you can build a portfolio with potential, diversified, and very balanced," they point out. "The way to invest is the same: long-term and profit," with a greater focus on specific companies and without differentiating by region. They cite consumer goods, basic materials, energy, and the financial sector among their favorites. Their scenario is that the market is digesting the changes, a digestion that has left violent upward and downward movements "doomed to be corrected in the long term."

At Bestinver, with a long-term vision, they see good options in many sectors.

The shared idea is that uncertainty will remain, if it hasn't always been there. When it wasn't the euro crisis, it was COVID, the war in Ukraine, tariffs... Trump is now introducing a new element in the form of a tax cut plan that threatens to further inflate the debt (currently at $36 trillion) and the deficit (it could exceed 6% this year, according to Scope Ratings). This rollout and its impact call into question the strength of the US, its bonds, and the dollar as safe havens. Moody's recent rating downgrade provided justification. Signs of change are being seen in bonds. US 10- and 30-year debt recently exceeded the 4.5% and 5% levels, respectively.

Wary investors are dumping US bonds. By reducing their price to place them, yields rise. “Investors are liquidating what they can to reduce risk, deleverage, or increase liquidity,” says Dan Ivascyn, chief investment officer at Pimco. With tariffs hitting growth and inflation, the fiscal plan is taking a toll. Bankinter forecasts an additional imbalance of between $3 and $5 trillion over ten years. These figures weigh on already strained accounts. “It adds 10%-16% of GDP to an economy that has a 120% debt-to-GDP ratio,” warns Forcada. “When this certain fiscal irresponsibility is seen, bond yields rise and the dollar falls. These transactions seem to reflect a paradigm shift,” he believes. Higher rates make future issues more expensive.

With the increases, the fixed-income market offers an "attractive" possibility, according to Pimco

The dollar's dominance is not being questioned, but its strength is eroding. Since Trump's arrival, the dollar against the euro has dropped by almost 8%. The rise in bond yields also affects stock markets, as bonds now offer attractive returns in a safer asset. Furthermore, it hurts equities, as companies would pay more to finance themselves. Just as it is a wake-up call, it also presents an opportunity. "We remain well positioned to take advantage of opportunities amid volatility. Bond yields are attractive. Markets are performing well; they are just very choppy," says Ivascyn. The firm maintains that quality segments "are resistant to defaults." While they acknowledge the need to remain patient in an environment of high uncertainty, "we are prepared to increase exposure to corporates." Pimco prefers short and medium-term tranches, and aside from the US, the UK, or Australia, it is focusing on Europe due to the intention to increase defense spending: "It's an interesting space to consider."

For an individual, “I'm more in favor of buying bonds directly than a fixed-income fund, which adds volatility. A 30-year bond that touches 5% reflects that average inflation is expected to be 5%, something that hasn't happened in previous years and I don't think will happen. It would be a good investment, with good returns and low volatility,” says Brun. No risk of surprises? “Even if the US debt or deficit is high, it won't be a problem as long as confidence in the dollar doesn't disappear. And it won't.”