Wall Street’s jitters highlight case for global diversification

Apprehension has returned to US stock markets, and the reasons are becoming increasingly difficult to ignore.

Many asset allocators I speak with are questioning valuations that appear stretched and overly reliant on a handful of technology giants. Although the S&P 500 and the Nasdaq 100 reached fresh highs just last week, the rally already feels vulnerable.

Outside the United States, sentiment is notably more optimistic. In Europe, Asia, and across several key emerging markets, investors are finding better value and a wider range of opportunities.

There’s growing interest in cyclical and defensive sectors that are trading at more reasonable levels. Allocators are beginning to shift their focus globally in search of better-priced assets and broader exposure.

Bond markets have remained relatively calm. Both US Treasuries and UK gilts continue to offer yields that are comfortably above inflation, which is a positive for those seeking stable income.

This is particularly noteworthy given the large volume of new debt that both governments are expected to issue in the coming months. Despite the supply pressures, yields have remained steady, which suggests there is still confidence in these instruments.

Gold is another asset that continues to reflect a more cautious outlook. Prices remain close to all-time highs. This signals ongoing demand for safe havens, especially as political risk and long-term inflation concerns linger in the background.

However, the single biggest driver of uncertainty in markets right now is trade policy. Tariffs are back in focus, and the outlook is murky at best.

We should not expect clarity on the final shape of US trade policy until well into 2026. Many of the recent bilateral agreements signed by the United States, including those with the UK and the European Union, are little more than frameworks for future discussion. They do not provide investors or businesses with the certainty they need to plan ahead.

Last Friday, Washington announced a new 39 percent tariff on certain Swiss imports, a move that has already prompted calls from Switzerland for renegotiation. At the same time, the existing US-Mexico-Canada Agreement, signed in 2020, is only guaranteed for another 90 days. Talks to extend or amend it are still ongoing, and the outcome remains unclear.

We also do not yet understand the full implications of these new trade measures on corporate earnings, global growth, or inflation. The numbers themselves are higher than many had expected.

According to Yale University’s Budget Lab, the average tariff now being implemented sits around 18.3 percent. For months, the consensus had been that the figure would hover near 10 percent. That expectation has now been upended.

What complicates the picture further is the weak economic data coming out of the United States. Last Friday’s payroll report showed a decline in manufacturing jobs.

In response, President Trump dismissed the head of the government’s labour statistics office, a move that raised eyebrows. Then came a disappointing ISM services survey, which pointed to contraction in the services sector. This followed five consecutive months of contraction in the ISM manufacturing index.

Taken together, this makes for an uneasy backdrop to Wall Street’s high valuations.

While recent second quarter earnings were relatively strong and prompted some upward revisions in forecasts, those upgrades are now under pressure. If incoming data continues to disappoint, it is likely that we will see some of those expectations revised downward.

In this environment, investors would do well to maintain a globally diversified approach. Concentrating capital in a single region or sector that appears strong today carries risks that may not be fully visible until sentiment turns.

Exposure across different geographies and industries can help reduce vulnerability to localized shocks.

Many European and Asian markets are not only more attractively priced but are also less exposed to the fallout from US trade policy. Emerging markets offer the potential for growth that is driven more by domestic demand than by global trade flows.

For private investors in particular, well-constructed multi-asset funds remain an effective way to access this broader set of opportunities.

These vehicles are designed to deliver strong risk-adjusted returns over time and tend to offer more diversification than an individual investor could achieve alone.

The current market environment is a reminder of how quickly sentiment can shift.

High valuations, policy uncertainty, and mixed economic data are a potent combination. Rather than chase short-term gains, long-term investors should remain focused on balance, discipline, and diversification.

Now is the time to think globally, act selectively, and prepare for a wide range of outcomes.