Hoshang Daroga (Elston) and Natasha Sarkaria (BlackRock) discussed the outlook for markets at our June 2025 Elston Investment Forum. Watch the video or read on to find the key findings are summarised here.
Where next for markets in 2025?Subscribe to our weekly newsletter to get all our insights to your inbox (for UK financial advisers only By Hoshang Daroga, Investment Director, Elston Consulting Reflecting on market performance
As we look back at the year-to-date market performance, we’ve seen a mixed and often volatile landscape. Bonds, which traditionally offer protection during turbulent times, have failed to provide that cushion. The “higher for longer” interest rate environment, inflation shocks, and broader macroeconomic uncertainty have all contributed to a period of underperformance. By contrast, gold has stood out as a reliable hedge, offering protection when equities and bonds have faltered.
Equities on the whole have performed positively this year. However, despite its strong recovery in price levels, the US market does not come off well when viewed through the currency lens. This discrepancy is due more to dollar weakness than sterling strength, a nuance that is critical to understanding the real story behind the numbers. Understanding currency movements
We have spent a lot of time unpacking the currency dynamics of this year. While many have spoken about sterling strength, we believe that what we are really seeing is broad-based dollar weakness. This has been driven by sentiment around tariffs and US policy, which has made global investors more cautious. Although we haven’t seen capital flight from the US, we’ve noticed a pause in new investments.
Despite this, we don’t believe the dollar is losing its reserve currency status. The long-term chart shows we’re still within a range-bound environment. Most of the recent movement is sentiment-driven, and we expect the dollar to remain structurally important in global markets. BlackRock’s view on currency
From BlackRock’s perspective, Natasha Sarkaria confirms their view that the dollar’s weakness has already played out against major currencies like sterling and the euro. Going forward, she expects more sideways movement rather than continued depreciation. However, in emerging markets—particularly in Asia and Latin America—there’s still room for the dollar to weaken further. Countries like Mexico and Brazil, which were previously punished on a currency basis, are now showing signs of recovery.
Currency is also playing a bigger role in equity diversification. For sterling-based investors, the decision of where to allocate that next unit of risk—whether to the US, Europe, or emerging markets—now includes a stronger currency consideration than in previous years. Revisiting US exceptionalism
There’s been a lot of talk about the end of US exceptionalism, especially following the tariff shocks and general political uncertainty. But when we look at the data—particularly earnings growth forecasts—the US still stands out. Consensus forecasts show US equities growing earnings per share by around 10–11% year-over-year, while UK equities are expected to decline.
This divergence is partly due to currency effects, especially for FTSE 100 companies that earn a significant portion of their revenues in dollars. As the pound strengthens, those revenues translate into lower earnings in sterling terms. But beyond currency, the fundamentals still favour the US. Positioning for uncertainty
We’re not ignoring the risks. The US is facing internal and external negotiations, from trade deals to tax reform. Volatility has been high, and we expect it to remain elevated. But we’re not trying to play politics—we are simply positioning for uncertainty. That means diversifying portfolios with assets like gold, which continues to be supported by central bank buying, particularly from China.
Every fundamental model might say gold has no more upside, but the downside is cushioned by this ongoing demand. Central banks are diversifying away from the dollar, and gold is the beneficiary. We’ve also seen insurance companies in China begin to buy gold directly, a trend we expect to continue. Alternatives to gold
When it comes to precious metals, silver has been a catch-up trade, moving in lockstep with gold since mid-May. While it has industrial uses, we see it primarily as a momentum play. Other metals like copper and platinum carry more liquidity risk, so we prefer to access those themes through miners rather than direct exposure.
Gold miners, in particular, have tracked the price of gold well this year, offering an equity-based way to gain exposure to the metal’s performance. Our strategic themes
Looking ahead to the third quarter, we’re focusing on three key themes. First, a resilient economy in a fragile world. Despite geopolitical tensions and inflation shocks, earnings remain solid. Second, America in negotiation—both externally with trade partners and internally with political stakeholders. And third, debt indigestion. The US debt situation is raising questions, but we believe it’s more about digestion than crisis.
We’re seeing strong flows into US treasuries, particularly from domestic investors, and US equity flows remain robust. While European and Middle Eastern investors are more cautious, the US retail market continues to exhibit confidence. Final thoughts
We are not buying into the narrative that US exceptionalism is over. Yes, we are in a cyclical downturn, but structurally, the US remains the most attractive market for long-term growth. We’re comfortable taking market risk there, especially in sectors like large-cap banks and tech software that are less exposed to tariff risks.
In this environment, diversification is more important than ever—across asset classes, geographies, and currencies. And while bonds may no longer be the diversifier they once were, alternatives like gold and real assets are stepping up to fill that role. Comments are closed.
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