New Tailwinds for Activists: Market Volatility, Policy Shifts and Geopolitical Challenges

The recent market downturn driven by uncertainty on tariffs, domestic policy shifts and the changing geopolitical landscape will continue to create new opportunities for activists in 2025. We highlight below how activism may evolve in the coming months:

Market Volatility and Dislocation Expand Value Creation Opportunities Across Multiple Sectors. Macroeconomic uncertainty has already pushed the major indices, including the S&P 500, into correction territory this year. The sell-off has occurred across all sectors, but those most vulnerable to tariffs and waning consumer sentiment—consumer discretionary, industrials, energy and technology—have been disproportionately impacted, while defensive sectors such as consumer staples and healthcare have outperformed. Activists are fundamentally long-only investors seeking positive risk-adjusted returns, and market volatility and dislocation will create new entry points for activists to acquire stakes at attractive valuations. Some of these accumulations could set the stage for activism campaigns down the road.

Bearish Oil Market To Spur Consolidation Imperative Within the E&P Sector. Market concerns on the impact of tariffs and OPEC+’s decision to increase output for the first time since 2022 have driven a decline in oil prices this year. Prices could continue to drop and U.S. Secretary of Energy Chris Wright recently urged companies to innovate to drive down prices. Shifting supply-side dynamics could further accelerate consolidation in a sector which has already seen key players swiftly moving to reduce production costs through scale. Companies that are underperforming or subscale relative to peers may face increased scrutiny from activists. Activist investor Kimmeridge has already indicated that it sees the market “coming [its] way” and a “tremendous amount of underperformance in some of the smaller and mid-sized exploration and production companies.”

Pullback From Biden Policies May Leave Smaller Players in the Renewables and Semiconductor Sectors Particularly Vulnerable. The suspension of federal funding from the Inflation Reduction Act has amplified pressure on a renewables sector already under strain from rising costs for raw materials, increased foreign competition and high interest rates. Continuing uncertainty on the future of the CHIPS Act, combined with the impact of new tariffs, is adding further pressure to smaller and emerging domestic chip manufacturers. More vulnerable players in the renewables and semiconductor sectors could face calls from activists to assess their strategic alternatives, including putting themselves up for sale in situations where there are not major regulatory concerns.

Macro Headwinds and Consumer Price Sensitivity Dampen Growth and Increase Margin Pressure in the Consumer Discretionary Sector. The lingering impact of high interest rates and inflation continues to weigh on consumer sentiment, with increasing pressure on households at all points on the income spectrum. This year, the consumer discretionary sector has seen some of the heaviest sell-offs. While lower inflation and anticipated lower interest rates may help to counteract the downward shift in consumer sentiment, companies facing weaker pricing power and slower growth could face calls from activists to take bolder steps to address soft performance.

Geopolitical Challenges to Complicate Foreign Investments. Geopolitical challenges will likely continue to complicate investments, particularly in strategic sectors including technology, critical infrastructure, healthcare, agriculture, energy and raw materials. Ongoing activist efforts to terminate U.S. Steel’s sale to Nippon Steel and China’s criticism of CK Hutchison’s planned sale of ports in Panama underscore the challenges of doing cross-border transactions in an era of growing geopolitical tensions and economic protectionism. Unsuccessful cross-border investments or transactions may create opportunities for activism.

Tightening Federal Spending May Increase Pressure on Defense and Other Federal Contractors to Streamline Operations.  An executive order issued by President Trump last month will require the head of each federal agency to “conduct a comprehensive review of each agency’s contracting policies, procedures, and personnel” as part of ongoing federal cost-cutting efforts led by the Department of Government Efficiency (DOGE).  While the extent to which defense and other federal contractors will be impacted by DOGE’s cost-cutting initiatives remains to be seen, there could be increased pressure on such companies to enhance operational performance and further diversify their customer base to protect growth and remain competitive.

*       *       *