Please note that the content of this review should not be considered as investment advice or any form of recommendation. If you require investment advice, please do not hesitate to get in touch with a member of our qualified team.
- Stock markets (MSCI World Index) are now slightly down this year, having lost 5% in March
- Bond markets (Bloomberg Global Aggregate Index) are up 2.6% this year
- US stocks have suffered a sharp correction
Key Themes
The mood among institutional investors has deteriorated in recent weeks, due to US-centric concerns. Trade tariffs, sticky inflation and slowing growth are the dominant topics of conversation. However, there are pockets of positivity in Europe and traditionally defensive assets. It is clear that 2025 is shaping up to be a far different year than 2024 and 2023, when growth stocks left everything else in their wake.
UK
The Spring Statement contained very little of note from a stock market perspective. There was some disappointment that measures weren’t put in place to support the London Stock Exchange, which has suffered outflows for several years now.1 Nevertheless, the FTSE 100 eked out a respectable 6% gain in the first quarter, placing it well ahead of the global market in a year where defensiveness is proving to be a virtue.
Real Estate Investment Trusts (REITs) have been a shining light. The Warehouse REIT and Care REIT both received takeover approaches in March and rose 30%. A range of other REITs ended the month more than 5% higher, beginning to close the deep discounts to Net Asset Value which have persisted since interest rates started to rise in 2022.
United States
The main stock market index in the US, the S&P 500, started the year well before experiencing a 10% decline from 19 February to 13 March. Historical data suggests a “correction” such as this tends to happen about once every two years, on average.2 The Magnificent 7 technology companies bore the brunt of the sell-off, declining by 15%.3 Investors in the US have seemingly decided to bank their previous gains in the face of President Trump’s highly volatile trade policies and proposed government spending cuts, which threaten to reduce economic growth.4
April has begun with Trump announcing a sweeping range of global tariffs which has caused various stock markets to fall by 1%-3% initially, threatening to create another leg to the downside.
Europe
European car makers were hit hard by Trump’s 25% tariff on all auto exports to the US. Their shares declined sharply in March, with Mercedes-Benz (-9%), Volkswagen (-10%), BMW (-12%) and Vauxhall and Peugeot owner Stellantis (-17%) all suffering.5 On a more positive note, the Euro advanced 4% against the Dollar and the Euro Stoxx 50 index is still up 7.5% year-to-date, helped by planned increases in defence spending.6
Asia & Emerging Markets
The Japanese stock market was broadly flat through the first quarter. The Bank of Japan is the only major central bank to be hiking interest rates currently, causing domestic bond yields to rise and the Yen to strengthen.
Meanwhile, emerging markets have been a mixed bag: Brazil (+14%) and Hong Kong (+12%) have had strong Q1 gains in sterling terms. Both were out of favour markets last year, but sentiment has now improved. Conversely, India (-5%) and Taiwan (-15%) have declined after strong 2024 gains. The latter is dominated by Taiwan Semiconductor, which has dropped alongside the likes of NVIDIA and Broadcom in the US, as the clamour over artificial intelligence stocks has dissipated.
Points of Interest
Trump’s tariffs have even managed to raise fury among the world’s friendliest people. Canadian investors have taken great offense at the measures implemented in early March: cutting their US ETF holdings in half with C$2bn withdrawn in the space of a week.9 There are even reports of American alcohol being removed from supermarket shelves and Tesla cars being burned on forecourts.10,11 Whether friendlier relations resume remains to be seen.
Gold is one of the classic “safety trades” and its continued rise is another sign of a risk-off mood prevailing among investors. It is one of the few assets to show consistent gains recently, having risen 19% over the first quarter to reach a new all-time high of $3,125.
Summary
If is often said that stock markets climb a wall of worry, and there is certainly plenty to be worried about in the current environment. With the Federal Reserve and Bank of England taking a slow and stuttering approach to interest rate cuts, there may be little to fuel a sustained bull market rally in the short-term.
However, losses are concentrated in the previously popular areas of the market for now, and safety may be found in both traditional defensive assets and those which have been out of favour in previous years. When the outlook is unpredictable it is best for investors to remain focused on long-term returns and proper diversification, as guiding principles.
Note: Past Performance Is Not A Reliable Indicator Of Future Performance
