Portfolio Adviser • Portfolio Adviser May 2025 • Knacke’s money maps

With US markets rattled by tariff talk and heightened volatility, investors are asking what’s really going on beneath the surface. Our systematic strategies have now fully exited US equity exposure following a negative turn in the second of our two proprietary signals. This move reflects the technical price deterioration in US equity markets over the past six weeks. At the same time, the macro-economic backdrop seems to be rapidly weakening.

The outlook for the US economy has worsened significantly. Despite the tailwinds coming into 2025 – robust growth, hiring and investments – sentiment has made a 180° turn and will likely impact all these areas in the next six to 12 months. The aggressive tariffs will undoubtedly hurt small companies more than large, listed ones – and small, private enterprises are the lifeblood of the US economy, accounting for over two-thirds of US employment and capex.

Given interest rates are high and credit tight, uncertainty surrounds working capital and how the remain vigilant! PA price hikes in the short term will be funded. Without renewed support for consumer demand – whether through fiscal stimulus or improved real income growth – I believe the probability of a sharp and deep recession now must become the base case.

The chart opposite illustrates the deterioration in our signals, which have historically been effective in identifying major regime shifts in market conditions. The second signal, which recently turned negative, has not done so in over two years.

Given valuations remain elevated relative to forward-looking earnings potential, it is clear the outlook for US equity markets is highly challenged. With tight credit conditions, margin pressure rising and topline growth slowing, an earnings recession is increasingly likely.

Despite an already significant market decline, a further correction of 20-25% should not be ruled out. Historically, this regime has been associated with major equity market drawdowns and volatile condiions across asset classes.

In light of this confluence of deteriorating signals and fundamentals, our exposure across all strategies have become significantly more defensive. However, it is worth considering it is darkest before dawn. Perhaps there is no blood on the street yet, but in volatility lies opportunity and investors should remain vigilant!

Why wealth firms need to take complaints more seriously

Complaint volumes across all FCA-regulated firms have continued to increase over the past 10 years and while complaints data tends to be ‘lumpy’ and too much emphasis shouldn’t be placed on individual periods, the consistent rise in these figures would seem to indicate a longer-term trend.

You have to ask if firms are taking measures to reduce complaints seriously or whether they feel complaints are simply inevitable, as nearly two years into Consumer Duty, it seems the industry is still to move the dial significantly.

As our own research on complaints has revealed, 76% of complainants say it has impacted loyalty to their provider, and 18% have moved providers entirely as a result. It’s clear then that firms need to consider complaints as an important factor in customer retention and maintaining their reputation.

Some firms were undoubtedly getting things right before Consumer Duty, but for others, taking a closer look at how complaints functions interact with the rest of the business is now crucial.

Complaints are one of the key metrics firms can use to understand customer satisfaction and when used correctly this data can help them understand how they can deliver better outcomes for clients.

Placing more emphasis on what actions are being taken to address issues, paying sufficient attention to finding resolutions and understanding root causes is crucial. Firms should consider creating a holistic view of customer satisfaction, bringing in additional information from wider customer feedback, behavioural analysis and testing, in line with Consumer Duty requirements.

They should look at their individual complaints data to understand the process of reversing this trend and consider whether the changes they’ve made since Consumer Duty have had the intended impact.

The current imbalance between prevention and cure means resources are dedicated to resolving individual complaints, without the corresponding focus on root cause.