First half of 2025 has been a rather Trumpy-bumpy ride to say the least. More than ever, investing feels like a high wire act: balancing risk and reward, reading market tea leaves, and adapting to rapidly changing political winds.

For English speakers, here is a new nursery rhyme which I hope will not materialize, but may very well do so:

Humpty Trumpty sat on the Wall (Street)

Humpty Trumpty caused a big beautiful fall

All the King’s horses and all the King’s men

Couldn’t put the economy back together again

All joking and kidding aside, the utterly serious question at the heart of today’s financial discourse is simple, yet profound: should I stay invested in the financial markets, or is it time to step aside?

Equity valuations have reached eye-watering heights, global politics - particularly from the US - are increasingly unpredictable, and the FED’s independence faces challenges from leaders who are totally unafraid to intervene. How should a seasoned investor respond and navigate?

Let’s consider a few key elements of this dilemma and develop a balanced outline for a 2025 investment strategy in equities, bonds and gold.

Should I stay or should I go ?

Navigating Global Markets amid Valuation Extremes, Political Uncertainty and Monetary Policy Turmoil.

1. Markets : Expensive by the Numbers

Historic and Current Valuation Metrics

• Price-Earnings Ratios (P/E)

  As of mid-2025, global equity markets, particularly in the US, are trading at extremely high P/E ratios compared to historical norms.

  • The S&P 500’s forward P/E ratio has hovered above 22, significantly above the 10- and 20-year averages.

  • CAPE (Shiller P/E) ratios are also at multi-decade highs, suggesting elevated expectations for future company earnings notwithstanding Trump’s tariffs.

  • The European Stoxx 50 is around the same highly expensive PE levels

• Other Indicators such as Price-to-book, price-to-sales, and enterprise value-to-EBITDA ratios all point to rich valuations, with US tech stocks carrying extra weight in index averages.

Implications of High Valuations

• Historically, starting investments during high valuation cycles leads to lower subsequent returns over 5-10 year horizons.

• Risks of correction are higher when asset prices significantly outrun underlying earnings growth. It is rather not a question of if, but when and how hard a correction will hit.

Are These Valuations Justified?

• Bulls point to low interest rates, sustained tech innovation, and improved profit margins. But those margins are previous to Trump tariff disruptions that still have to take full effect into corporate life.

• Bears highlight risks of over-extrapolation and the re-emergence of inflation or higher rates as valuation headwinds.

2. Trump & Geopolitical Uncertainty

Tariffs, Trade Wars, and Market Jitters

• Since the return of Donald Trump to the US presidency, markets face renewed unpredictability regarding tariffs, trade deals, and global alliances. Never a dull moment here.

• Mercurial trade policies and abrupt tariff implementations can disrupt both supply chains and investor sentiment.

• Retaliatory tariffs from trading partners (EU, China) add further risk, creating new market shocks with little warning. This almost has become a “come and see next week” show.

Impact on Companies and Sectors

• Export-driven sectors and global supply chain dependent firms face sharper risks.

• Certain domestic industries or “protected” sectors may enjoy transient advantages.

• Currency volatility, policy uncertainty, and altered capital flows affect all asset classes.

The Unquantifiable—Confidence and Volatility

Markets detest uncertainty. Unpredictable political leadership can raise the risk premium demanded by investors, leading to potential price volatility even in otherwise strong economies.

3.  Pressure : The Fed in the Spotlight

The Traditional Role of Central Banking

• Historically, central banks like the US Federal Reserve have operated with high independence, focused on dual mandates: price stability and (full) employment.

• Market participants look to the Fed for transparent, data-driven policy—and anchor their expectations accordingly.

Trump’s “Hands-On” Approach

• Persistent public commentaries and pressure on Fed policy threaten to politicize decisions around interest rates.

• Attempts to manipulate rate policy for short-term political advantage could undermine central bank credibility, risking heightened future inflation or asset bubbles.

What’s at Stake?

• Credibility erosion increases risks of inflation overshoot or illfounded expectations—which could jolt bond, equity and currency (USD) markets.

• If the market perceives that the Fed cannot or will not act independently, it may demand higher rates, negatively impacting valuations and broad economic conditions.

4. Investment Frameworks for Uncertain Times

Time Horizon and Personal Risk Tolerance

• Short-Term Investors: Should be wary of sharp reversals, corrections and/or episodes of volatility.

• Long-Term Investors: May have flexibility to ride out cycles, though those starting out are confronted with highly uncertain conditions.

The Value of Diversification

• Even in expensive markets, diversification remains a powerful defense.

• Geographic, sector, and asset class diversification can mitigate country- or event-specific shocks.

Avoiding the All-or-Nothing Trap

• Gradual rebalancing and tactical shifts generally outperform wholesale portfolio liquidations, which risk missing rebounds or suffering from poor market timing.

5. Assessing the Alternatives: Bonds, Cash, & Diversification

Bonds: Safe Harbor or just another Risk?

• Sovereign Bonds: 2025 sees yields recovering from the deep lows of the 2020s, but real yields (after inflation) remain thin.

• Credit Risk: With policy uncertainty and high valuations, corporate bonds—especially lower-rated ones—may entail heightened risk of repricing or default.

• Duration Risk: If inflation or rates rise unexpectedly (e.g., due to policy missteps), long-duration bond prices could fall.

Cash and Cash Equivalents

• Offers safety and optionality, but “loses” in real terms amid even modest inflation.

• Reasonable as a reserve, but hard to justify as a long-term holding in a portfolio seeking growth.

• And obviously, this only holds for your own reference currency. Venture out of it and you add currency risk to your portfolio.

Alternatives and Defensive Assets

• Gold, inflation-protected securities, and other non-correlated assets may offer protection.

• Real estate, commodities, or select international markets can be considered for diversification, but require research and selectivity.

6. Gold : Performance, Trends and Roles

2025 Gold Price Action and Drivers

Record Returns

In the first half of 2025 alone, gold surged over 25%, hitting record highs well above $3,300 per ounce—outperforming most major asset classes, including equities and bonds.

Demand Drivers

• Heightened geopolitical and inflation risks

• Active central bank buying (especially emerging markets seeking dollar alternatives)

• Weaker global currencies and recession worries

Forecasts

Consensus estmates average gold prices for late 2025 to be around $3,600–$3,700, with some analysts even forecasting $4,000/oz possible in the next year under continued uncertainty.

Gold’s Strategic Edge in a Portfolio

Diversification

Gold’s low-to-negative correlation with both stocks and bonds makes it a powerful diversifier, reducing overall portfolio risk and potentially increasing risk-adjusted returns.

Defensive and Inflation-Hedging Properties

Gold historically serves as a hedge against inflation, currency weakness, and major market shocks. Within an investment portfolio context, even a 2 to 10% allocation can meaningfully lower volatility and drawdown risk while increasing the Sharpe ratio (investment return per unit of risk taken).

Liquidity and Resilience

Gold is exceptionally liquid, with easily accessible ETF and physical markets, and rarely challenged by credit or counterparty risk.

7. International Market Perspectives

Developed vs. Emerging Markets

• Valuations

  European and Japanese equities often trade at lower P/E ratios than most US stocks, partly reflecting slower growth, demographic challenges, or political uncertainty.

• Emerging Markets

  Offer growth potential and relatively attractive valuations, but are often more vulnerable to global shocks, political instability, or currency risk.

Currency Considerations

• Currency exposure has two faces: currency risk and a source of potential return.

• In times of global uncertainty, “safe haven” currencies (USD, CHF, JPY) tend to appreciate, while riskier ones can depreciate rapidly, even it they offer seemingly high interest rates.

8. Strategic Considerations and Tools

Partial De-Risking and Tactical Shifts

Rather than liquidating holdings outright, consider the following:

• Trim exposure to the most overvalued sectors or geographies.

• Increase allocation to sectors or regions with reasonable valuations and robust fundamentals.

• Rebalance toward defensive or non-correlated assets:

  • High-quality government bonds (Not below "investment grade" ratings).

  • Dividend-paying equities

  • Inflation-hedged instruments

Maintain Dry Powder

• Maintain a sufficient allocation in cash or near-cash instruments. This provides flexibility to buy during dips and partially protects against forced selling in corrections.

Hedge Political and Interest-Rate Risk

• Use options, inverse funds, or forwards (currency hedges) IF AND ONLY IF you fully understand their risks and costs. If not, do ask professional advise.

• Consider shortening duration in fixed-income holdings if expecting higher rates.

Commit to Process, Not Prognostication

• Review your investment policy statement, goals, and constraints.

• Rarely a wholesale exit (“go”) outperforms disciplined, incremental adjustments.

• Use volatility as an opportunity to reassess and fine-tune—not as a prompt for panic.

9 - Conclusions

The investing adage “this time is different” is always tempting amid dramatic headlines and extreme valuations. Current market conditions - record-high valuations, unpredictable US policy, and central bank meddling - undoubtedly challenge investors’ nerve and discipline. But committing to overly dramatic (re)action, such as fully exiting the markets, almost always comes with its own risks:

• Loss of compounding over time.

• Potential to miss out on major positive reversals and unexpected rebounds.

• Difficulty of precise market timing—few get both exit and re-entry points right.

• There is an old saying to bear in mind: it is not about market timing, but time in the market

The balanced path for a thoughtful, globally oriented investor:

• Recognize and respect current risks. Adjust exposure and allocations accordingly.

• Rebalance portfolios to hedge against policy shock and valuation extremes—but do so methodically, not emotionally.

• Diversify across asset classes and geographies.

• Keep some liquidity available for unforeseen opportunities or to ride through volatility.

So, should I stay or should I go?

The answer is to remain invested BUT at the same time

• If you just start investing, do not be in a hurry. FOMO can be an expensive adviser.

• If you are already invested, make sure to be sufficiently diversified, this is your best defense.

• Apply and respect an asset allocation in line with your investor profile.

  • Link to daily asset allocations :  asset allocation

  • Link to investor profile test :  your investor profile

• Have dry powder on the side for coming opportunities (exactly what Buffet did last year)

• Prefer lower-risk investments over high risk ones in these volatile times

• Proceed with added caution, discipline and commitment to risk management.

In short, adopt all of the attitudes outlined in point 8 above. When doing all that, calm, patience and time will work in your favor in the long run. Success to all !

Stay curious and invest wisely !