Navigating global stocks amid tariffs & volatility

May 29, 2025

KEY TAKEAWAYS

  • An opportunity presents itself for active investors who can find global companies less likely to be affected by tariffs.
  • Multinationals may have a competitive advantage in the long term.
  • Global market emphasis appears to be shifting away from mega-cap U.S. equities.

In early 2025, investors saw indications that U.S. equity dominance was wavering. Now, the market volatility following the back-and-forth of U.S. tariffs is giving investors even more reason to take a fresh look at global equity strategies and rethink assumptions in their portfolios. It’s important to note that the current tariff-led disruption is not a blip; it is the latest signal in a multiyear trend of evolving global trading patterns and tariffs. This presents risks and opportunities and underscores the importance of active management in global equity strategies.

Change brings opportunity for active investors

In this environment, investors may want to put individual company and sector positions under the microscope. For example, tariffs were levied quickly on commoditized heavy industries such as metals and autos, weighing on companies in or adjacent to those industries. Conversely, there may be less impact in growth sectors like biopharma and semiconductor equipment, where some companies operate with limited competition. Those that provide essential products to the U.S. — such as patented drugs and specialized semiconductors and semiconductor-making equipment — also may be less affected if their products cannot easily be replaced by U.S. producers.
 

To be sure, the impact of tariffs could vary substantially, even within the same industry and country of domicile. Certain companies may also be more affected by tariffs than others based on the locations of their supply chains and customers.

U.S. Sales by origin versus destination

Source: Redburn. Data based on internal company estimates of 2023 sales. As of 12/31/23.

“For the moment, local companies are out of the eye of the storm, but in the long run, the globally diversified multinational companies have the most flexibility,” says New Perspective Fund® equity portfolio manager Jody Jonsson.
 

These multinationals have the resources to respond to local-market consumer preferences and regulatory regimes, even as they enjoy economies of scale, diversified customer bases and global brand recognition. Pharmaceutical companies Novo Nordisk and AstraZeneca, based in Denmark and the U.K., respectively, are good examples. They are expanding research and manufacturing operations in the U.S., which could help reduce their exposure to U.S. tariffs.
 

But global trade developments are not the only source of potential opportunities. Equity valuations, for instance, clearly point to opportunities outside the U.S. market. Non-U.S. stocks carry far lower multiples than U.S.-based competitors, offering a broad set of attractively priced equities to then assess through the lens of tariffs. 

Valuation gap — U.S. vs. rest of the world

Source: RIMES. As of March 31, 2025. Data reflect price-to-earnings ratios based on future earnings expectations. Calculations are based on the MSCI Emerging Markets Index, MSCI All Country World Index ex USA, MSCI Europe Index, MSCI Pacific Index and MSCI USA Index, respectively.

A potential decline in U.S. market concentration may also create fresh opportunities for investors. The Magnificent 7 stocks that have driven U.S. equity market gains in recent years are the latest in a string of once impregnable market leaders that includes technology stocks in the 1990s, Japanese stocks in the 1980s and the “Nifty Fifty” growth stocks that dominated U.S. markets in the early 1970s.
 

A pullback in the Magnificent 7 could lead to gains in a broader swath of large-cap companies. As shown below, several dozen companies whose market caps collectively equaled the Magnificent 7’s market caps generated significantly higher sales and profits. This highlights another large and diverse opportunity set. 

The largest companies dominate the U.S. market …

Sources: Capital Group, FactSet. Rest of largest 48 companies represent stocks following the Magnificent 7, ranked by market capitalization, with the above stocks topping the list. Sales are the net sales (or revenues) of the relevant items reported in the last 12 months. Profit is represented by the trailing 12-month operating profit. As of 3/31/25.

Earnings growth figures appear to support this trend. S&P 500 Index companies outside the Magnificent 7 have narrowed the growth gap with the Magnificent 7 since 2023. This could increase the likelihood that a larger swath of companies will contribute to equity market returns.

Mag 7 earnings growth converging with the rest of the S&P 500

Quarterly earnings per share growth (year-over-year % growth)

Source: Bloomberg Finance L.P. Data as of 3/31/25.

Summary

The new U.S. administration has brought a renewed emphasis on restructuring global trade and other policies intended to rewire the U.S. economy. As these efforts take hold, multinational companies will be challenged to navigate a rapidly changing operating environment. For investors, the key will be to assess the growth prospects of multinationals and their ability to navigate evolving global trade patterns, regardless of their geographies.
 

For an actively managed global equity portfolio that takes into consideration these fluctuating tariff landscapes and shifting dynamics, investors might consider New Perspective Fund, which is positioned for times like these. The fund seeks to take advantage of investment opportunities generated by changes in global trade patterns and economic and political relationships.

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The forward price-to-earnings (P/E) ratio refers to a company’s current price per share of stock divided by its estimated future earnings per share. Also known as the earnings multiple, this measurement is a common tool in fundamental analysis that helps compare how relatively expensive one company's stock may be compared to another’s.
 

Magnificent Seven refers to seven companies (Microsoft, Apple, Alphabet, Amazon, NVIDIA, Meta and Tesla) whose stocks came to dominate the U.S. stock market indexes in 2023. The phenomenon is reminiscent of previous periods of market concentration, including "FAANG" stocks in the mid-2010s and "Nifty Fifty" stocks in the 1970s.
 

MSCI All Country World Index (ACWI) ex USA is a free float-adjusted market capitalization weighted index that is designed to measure equity market results in the global developed and emerging markets, excluding the United States. The index consists of more than 40 developed and emerging market country indexes. Results reflect dividends gross of withholding taxes through December 31, 2000, and dividends net of withholding taxes thereafter. This index is unmanaged, and its results include reinvested dividends and/or distributions but do not reflect the effect of sales charges, commissions, account fees, expenses or U.S. federal income taxes.
 

The MSCI Emerging Markets Index captures large and mid cap representation across Emerging Markets countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country.
 

MSCI Europe Index is a free float-adjusted market capitalization-weighted index that is designed to measure results of more than 10 developed equity markets in Europe. Results reflect dividends net of withholding taxes. This index is unmanaged, and its results include reinvested dividends and/or distributions but do not reflect the effect of sales charges, commissions, account fees, expenses or U.S. federal income taxes.
 

The MSCI Pacific Index captures large and mid cap representation across 5 Developed Markets (DM) countries in the Pacific region. With 280 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. DM countries in the MSCI Pacific Index include: Australia, Hong Kong, Japan, New Zealand and Singapore.
 

The MSCI USA Index is designed to measure the performance of the large and mid cap segments of the U.S. market. The index covers approximately 85% of the free float-adjusted market capitalization in the U.S.
 

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