Investment Outlook: Fending off the “Panicans” with stimulus and spending

In a recent series of Truth Social posts, Trump coined the term "Panicans" to describe individuals and entities expressing concern over his sweeping tariff policies. The term, seemingly a blend of ‘panic’ and ‘Republican’ or ‘American’, was used to dismiss critics who feared economic and financial market instability due to Trump’s aggressive trade measures. 

We examine four potential concerns of the Panicans: i) trade protectionism; ii) geopolitical tensions; iii) US recession risk; and iv) bond market uncertainty. 

We then explore how stimulus and resilient consumer spending have so far helped to mitigate these risks, supporting a recovery in risky assets following the initial market shock from Trump’s tariff hikes in early April.

i) Trade protectionism: The US has a long history of imposing tariffs in recurring half-century waves from the introduction of tariffs in 1789 to 1828 (Tariff of Abominations): 1890 (the McKinley Tariff); 1930 (Smoot-Hawley Tariff Act); 1971 (the Nixon shock) and 2018 (Trump’s first term). These actions often left lasting economic scars. For example, tariff increases in the 1930s deepened the Great Depression by triggering retaliatory measures from other nations. With Trump’s renewed trade protectionism in his second term, fears are growing that another disruptive cycle is unfolding. 

ii) Geopolitical tensions: The tit-for-tat military strikes between Israel and Iran in June have intensified geopolitical instability throughout the Middle East. While a tentative ceasefire has been agreed, this still casts uncertainty over global energy supplies due to the risk of potential disruptions. This could occur at the strategically critical Strait of Hormuz, a narrow waterway between Iran in the north and Oman and the United Arab Emirates in the south where roughly one-fifth of global seaborne oil and liquefied natural gas passes. Should Iran disrupt shipping in the Straits, energy supply could be curtailed and lead to a spike in their prices and inflationary concerns globally.

iii) US recession risk: While US real gross domestic product (GDP) contracted slightly in the first quarter of 2025, it could be argued that front-loaded imports ahead of tariff increases distorted the data and so it should be overlooked. Nevertheless, according to the latest Bloomberg survey of economists, the median average probability of a US recession in the next 12 months is around 38%.¹ This matters: US stocks tend to fall more during recessions, as the second-round impact of a downturn feeds through to the real economy (think redundancies triggering housing foreclosures or rising consumer defaults).

iv) Bond market uncertainty: There is currently no political consensus on reining in government borrowing and restoring fiscal sanity. In fiscal year 2024, the US budget deficit reached 6.4% of GDP, making it the largest outside of major wars, the Great Recession, and the Covid-19 pandemic.² The One Big Beautiful Bill Act (OBBBA) currently working its way through congress could add around $3 trillion to the existing US public debt of $36 trillion over the next decade.³ See our piece ‘Not-so-beautiful US taxes’.

Despite the concerns of the Panicans, the fundamental picture still looks constructive for listed companies. Analysts have already revised 2025 global equity earnings-per-share (EPS) growth forecasts down to 8% from 13% a year ago to reflect these macro risks.⁴ However, consensus EPS growth forecasts for 2026 have edged up to 13% on the expectation of ongoing stimulus and solid spending by the private sector.⁵ 

Stimulus: Globally, major governments are stimulating their respective economies. On the fiscal side, European governments are planning to significantly boost public expenditure on infrastructure and defence. Over in the US, the OBBBA includes stimulus to boost the economy by 0.9% of GDP in 2026 and 0.6% in 2027.⁶ On the monetary side, traders expect the Federal Reserve, Bank of England and European Central Bank to steadily cut interest rates. The futures market has priced in a full percentage point cut in the US base interest rate to bring it down to 3.2% by end 2026.⁷ In parallel, China is also easing both fiscal and monetary policy. Collectively, these measures should help dampen the negative effects of an aggressive trade protectionism.

Spending: US private sector expenditure continues to serve as the backbone of global economic activity. Importantly, jobs are being created and inflation has slowed to boost real income and economic growth. For instance, US real final sales to private domestic purchasers (excludes volatile components like inventories, government spending, and exports) grew at an annualised rate of 1.5% in the first quarter of 2025 and is projected by the Atlanta Fed to have expanded by a similar pace in the second quarter.⁸ While a little slower than trend growth of around 3%, US real final sales to private domestic purchasers still indicates that US domestic demand is resilient enough to offset trade tariff headwinds, at least so far.⁹

The decision by Trump on 22 June to support Israel and directly strike Iran to reduce the threat from its nuclear program opens a new set of risks for investors. These range from the conflict spreading across the Middle East to the US being bogged down in a proxy war with Iran and the potential for energy disruption in the region. Should the fragile Israel-Iran ceasefire unravel these risks could weigh on markets.

It is important to hold diversifiers (including gold) to reduce volatility in multi-asset portfolios during this heightened uncertainty. Inflation-linked bonds may also play a role as they tend to outperform conventional bonds when oil prices rise.

Within equities, oil and gas stocks are a way to mitigate portfolio risk in the event of a spike in energy prices – as we saw happen in 2022 following the Russian invasion of Ukraine. Given that the sector is also trading on an undemanding 13 times earnings, it is also a cheap way to gain from a potential spike in the crude oil price.¹⁰

Aerospace and defence stocks are another way for investors to offset the risk of conflict. Governments around the world have ramped up military expenditure budgets, increasing revenues for the defence industry. However, the valuation for this sector has become stretched, with the MSCI All Country World aerospace and defence sector trading at a record high of 29 times forward earnings.¹¹

While the “Panicans” may be vocal,stimulus and spending can offset market fears and support equities.

1.7 Bloomberg, Evelyn Partners
2,3,4,5,8,9,10,11. LSEG/Evelyn Partners
6. BCA, The US economy is holding up for...for now, 6 June 2025