Markets are playing a crucial role in guiding the US administration towards sensible, amicable policy, but uncertainty will still likely drag on activity ahead. The thing to fear is fear itself.

The risk is that uncertainty about US policy causes firms and households to pause their spending plans, instead choosing to wait and see.

We can take comfort from the strong fundamentals of the US private sector, and the way that other countries are reacting with their own stimulus.

Investors must focus on stable strategies to thrive in these unstable times:

• Use regional stock diversification and income strategies.
  Diversifying exposure will reduce risks linked to over dependence on the fortunes of tech, and the broad US market. Most importantly, we still believe that unlike the last 10 to 15 years, investors will see better risk-adjusted returns from being well regionally diversified than from running concentrated US portfolios.
• Own bonds for bad weather, not all weather.
  Fixed income investors are contending with conflicting risks of higher inflation and slowing growth. Despite this, we still see bonds playing an important role in a portfolio. Throughout this volatility, we shouldn’t lose sight of the downside protection that bonds will afford us if the attention shifts once again towards recession risk.
• Use alternative investments for alternative risks.
  As the threat of resurgent inflation looms large, investors should remember the lessons from 2022 and how real assets can provide an inflation hedge. Many of the best places to hide during 2022’s inflation shock were in core real assets, such as infrastructure, transportation, and timberland.
• Be mindful of currency exposure.Currency moves could compound losses in US assets in several risk-off scenarios. Be aware of FX exposures and consider hedging USD positions. If US policies turn out to be inflationary and destabilising, the dollar is likely to lose its positive diversification effects in the future.

Inflation and policy uncertainty tend to generate sustained periods of market volatility and cross-asset dispersion. In the current environment, investors should consider leaning into strategies that can capitalise on these conditions.

JPMorgan Asset Management (UK) Limited is an offshore strategic partner to STANLIB Asset Management (Pty) Ltd and is authorised and regulated by the UK’s Financial Conduct Authority.