Markets rebound after Trump tariffs stun investors
Investment markets experienced heightened volatility during the quarter following President Trump’s announcement of trade tariffs on 2 April which he called ‘Liberation Day’. Whilst Mr Trump had spoken of ‘tariffs’ being one of his favourite words in the English language during his presidential campaign, the size of the tariffs, the global reach of the tariffs and the almost immediate application stunned global markets. This resulted in a precipitous decline in global indexes of over 10% in early April. A week later with the US bond market cracking President Trump agreed to pause tariffs for 90 days until 9 July so as to allow time for countries to negotiate with the US triggering a sharp relief rally which has continued until the end of June. Overall, global markets have rebounded strongly ending the quarter in positive territory.
US dollar weakness
The stand-out feature of the last 3 months has been the weakness of the US dollar against sterling and other currencies. The US dollar has depreciated by nearly 6% against sterling over the quarter and by 9% since the start of 2025. This is due to investors questioning the safe-haven status of the US dollar with Mr Trump’s erratic trade war politics, his ‘big beautiful’ tax bill which is expected to increase US government debt by $3.2tn over the next 10 years, and the independence of the US Federal Reserve as Mr Trump has demanded lower interest rates. Indeed, markets are anticipating five US interest rate cuts of quarter of one percent by the end of next year. This fall in the value of the US dollar is the weakest 6-month period for the currency since 2009 but not as dramatic as the 15% decline in 1973.
Don’t bet against America
As Mr Trump announced his package of trade tariffs causing turmoil many investors predicted the end of ‘US exceptionalism’ and the outperformance of US equities compared with global peers. The case of rotation into other markets, particularly Europe was largely based on the momentum created by Germany’s €1tn spending commitment for infrastructure and defence. However, in local currency terms the US market has significantly outperformed over the last 3 months, especially the technology laden NASDAQ which has bounced 16% and the S&P 500 index registering gains of around 10%. By contrast, continental Europe has gained only around 2% lagging behind Japan and the UK (+4%), and global emerging markets and Asia Pacific with gains of 7% and 8% respectively. Gold has also continued to shine with a gain of over 10% in US dollar terms over the last quarter.
For UK investors the strength of sterling against the US dollar and Yen have acted as a significant headwind to returns. In sterling terms, Asia Pacific ex-Japan and global emerging markets have delivered the best returns of the last 3 months, approx. 5%, Europe and the UK 4%, the US just behind at 3.5%, and Japan around 1.5%.
US equities advance
The US S&P 500 has recently recorded its all-time high. Confidence has returned to the technology sector evidenced by the rebound in the chip-maker Nvidia and other artificial intelligence related companies. US companies are deploying AI quicker than foreign competitors including China – eight of the top ten AI platforms by users are American, led by ChatGPT. The recent US employment numbers have been strong despite predictions of a trade war. In addition, US companies have been buying back their own shares at record levels underpinning share prices, together with large scale buying by US retail investors. Whilst it was hoped the US market recovery would broaden beyond the mega caps, this has not happened and the equal-weighted S&P500 index has continued to lag the better-known market capitalisation (size weighted) index.
Questions remain over European markets
European bourses jumped in the first part of the year on the hope of fiscal stimulus and economic reforms to boost hitherto lacklustre growth. In addition, the new German government’s commitment to huge infrastructure and defence spending was warmly welcomed. However, the momentum stalled in the second quarter of 2025 as European earnings remain patchy. The European Commission has recently downgraded its growth forecasts as a consequence of Trump’s tariffs with both consumer and business sentiment muted. In addition, US productivity remains significantly superior to European markets. So, whilst global investors have rotated some exposure out of the US into European equities for greater diversification, it remains to be seen the extent to which European markets will continue to benefit.
UK equities boosted by US trade deal
The UK trade deal with the US reducing tariffs in some areas boosted investor sentiment especially for companies in the aerospace sector such as Rolls-Royce. Sterling strength has also helped to attract foreign investors. Defence companies including Babcock and BAE Systems have benefitted from ongoing geopolitical tensions and anticipated higher UK and European defence spending. The UK interest rates was cut to 4.25% in May helping to support UK equities, especially the mid-cap FTSE 250 index. However, investors are looking for economic reforms, domestic investment and macro-economic stability for the UK market to make significant progress. UK economic growth appears to be slowing raising doubts about its sustainability especially with the government potentially needing to raise taxes or borrow more in the autumn Budget to cover planned expenditure.
Asian and Emerging markets rebound
After the shock of Trump’s tariffs Asian and global emerging markets have recovered strongly. In particular the Indian market has rallied strongly in recent months as global trade risks are perceived to have reduced and companies have delivered some impressive earnings. The Chinese government has introduced stimulus measures to boost domestic consumption as well as encourage investment. In diverse scientific fields including AI and medical science Chinese companies are catching up with US competitors and in some cases overtaking them; President Trump has referred to the claims of Chinese AI company, DeepSeek, as a ‘wake-up call’ for US companies.
Market Outlook – Opportunities Ahead
Looking ahead, inflation is expected to moderate and interest rates are expected to reduce supporting both equities and bonds. Company earnings remain robust with positive numbers anticipated from a wide range of business sectors. This gives grounds for cautious optimism with regard to investment returns for the second half of the year.
However, trade tensions and political risks remain potential headwinds, particularly with 9 July looming when the postponement of Trump’s trade tariffs ends. A satisfactory resolution of trade tariffs is key to positive market returns in the coming months.
Portfolio positioning
We live in uncertain times, so our view remains that it is important to be well diversified both geographically and by business sector. This is both to ensure our clients benefit from profitable opportunities and also to help mitigate market volatility. We continue to favour significant exposure to US equities on the basis of strong earnings and robust balance sheets. We consider that the US dollar may stabilise in the months ahead which should help returns going forward.
At the same time, we have increased exposure to other parts of the world with larger holdings in continental Europe, the UK as well as Asian and emerging markets to maximise diversification. Our focus in all cases is on companies with quality earnings and good financial strength with the potential to weather likely geo-political volatility. This means we favour multi-national businesses which have the ability to switch operations to different countries as appropriate which is important in a climate of uncertainty regarding import duties.
In terms of bonds, our preference remains for short-dated bonds for security and a more competitive interest rate with less risk; we remain concerned that longer dated bonds are vulnerable to governments around the world needing to issue more bonds than expected to cover spending requirements.
Please note that the content on this page is based on our understanding and the available information; we cannot be held responsible for any errors, and you should not act on the basis of the information in these articles, nor do they constitute investment advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise. Overseas investments are affected by currency movements and exchange rates. If you would like investment advice on your individual circumstances, please do not hesitate to get in touch via telephone at 01392 875500 or email at info@SeabrookClark.co.uk.
Market Overview Quarter 2 2025 (1 April – 30 June 2025) and Outlook
Matthew Clark
Markets rebound after Trump tariffs stun investors
Investment markets experienced heightened volatility during the quarter following President Trump’s announcement of trade tariffs on 2 April which he called ‘Liberation Day’. Whilst Mr Trump had spoken of ‘tariffs’ being one of his favourite words in the English language during his presidential campaign, the size of the tariffs, the global reach of the tariffs and the almost immediate application stunned global markets. This resulted in a precipitous decline in global indexes of over 10% in early April. A week later with the US bond market cracking President Trump agreed to pause tariffs for 90 days until 9 July so as to allow time for countries to negotiate with the US triggering a sharp relief rally which has continued until the end of June. Overall, global markets have rebounded strongly ending the quarter in positive territory.
US dollar weakness
The stand-out feature of the last 3 months has been the weakness of the US dollar against sterling and other currencies. The US dollar has depreciated by nearly 6% against sterling over the quarter and by 9% since the start of 2025. This is due to investors questioning the safe-haven status of the US dollar with Mr Trump’s erratic trade war politics, his ‘big beautiful’ tax bill which is expected to increase US government debt by $3.2tn over the next 10 years, and the independence of the US Federal Reserve as Mr Trump has demanded lower interest rates. Indeed, markets are anticipating five US interest rate cuts of quarter of one percent by the end of next year. This fall in the value of the US dollar is the weakest 6-month period for the currency since 2009 but not as dramatic as the 15% decline in 1973.
Don’t bet against America
As Mr Trump announced his package of trade tariffs causing turmoil many investors predicted the end of ‘US exceptionalism’ and the outperformance of US equities compared with global peers. The case of rotation into other markets, particularly Europe was largely based on the momentum created by Germany’s €1tn spending commitment for infrastructure and defence. However, in local currency terms the US market has significantly outperformed over the last 3 months, especially the technology laden NASDAQ which has bounced 16% and the S&P 500 index registering gains of around 10%. By contrast, continental Europe has gained only around 2% lagging behind Japan and the UK (+4%), and global emerging markets and Asia Pacific with gains of 7% and 8% respectively. Gold has also continued to shine with a gain of over 10% in US dollar terms over the last quarter.
For UK investors the strength of sterling against the US dollar and Yen have acted as a significant headwind to returns. In sterling terms, Asia Pacific ex-Japan and global emerging markets have delivered the best returns of the last 3 months, approx. 5%, Europe and the UK 4%, the US just behind at 3.5%, and Japan around 1.5%.
US equities advance
The US S&P 500 has recently recorded its all-time high. Confidence has returned to the technology sector evidenced by the rebound in the chip-maker Nvidia and other artificial intelligence related companies. US companies are deploying AI quicker than foreign competitors including China – eight of the top ten AI platforms by users are American, led by ChatGPT. The recent US employment numbers have been strong despite predictions of a trade war. In addition, US companies have been buying back their own shares at record levels underpinning share prices, together with large scale buying by US retail investors. Whilst it was hoped the US market recovery would broaden beyond the mega caps, this has not happened and the equal-weighted S&P500 index has continued to lag the better-known market capitalisation (size weighted) index.
Questions remain over European markets
European bourses jumped in the first part of the year on the hope of fiscal stimulus and economic reforms to boost hitherto lacklustre growth. In addition, the new German government’s commitment to huge infrastructure and defence spending was warmly welcomed. However, the momentum stalled in the second quarter of 2025 as European earnings remain patchy. The European Commission has recently downgraded its growth forecasts as a consequence of Trump’s tariffs with both consumer and business sentiment muted. In addition, US productivity remains significantly superior to European markets. So, whilst global investors have rotated some exposure out of the US into European equities for greater diversification, it remains to be seen the extent to which European markets will continue to benefit.
UK equities boosted by US trade deal
The UK trade deal with the US reducing tariffs in some areas boosted investor sentiment especially for companies in the aerospace sector such as Rolls-Royce. Sterling strength has also helped to attract foreign investors. Defence companies including Babcock and BAE Systems have benefitted from ongoing geopolitical tensions and anticipated higher UK and European defence spending. The UK interest rates was cut to 4.25% in May helping to support UK equities, especially the mid-cap FTSE 250 index. However, investors are looking for economic reforms, domestic investment and macro-economic stability for the UK market to make significant progress. UK economic growth appears to be slowing raising doubts about its sustainability especially with the government potentially needing to raise taxes or borrow more in the autumn Budget to cover planned expenditure.
Asian and Emerging markets rebound
After the shock of Trump’s tariffs Asian and global emerging markets have recovered strongly. In particular the Indian market has rallied strongly in recent months as global trade risks are perceived to have reduced and companies have delivered some impressive earnings. The Chinese government has introduced stimulus measures to boost domestic consumption as well as encourage investment. In diverse scientific fields including AI and medical science Chinese companies are catching up with US competitors and in some cases overtaking them; President Trump has referred to the claims of Chinese AI company, DeepSeek, as a ‘wake-up call’ for US companies.
Market Outlook – Opportunities Ahead
Looking ahead, inflation is expected to moderate and interest rates are expected to reduce supporting both equities and bonds. Company earnings remain robust with positive numbers anticipated from a wide range of business sectors. This gives grounds for cautious optimism with regard to investment returns for the second half of the year.
However, trade tensions and political risks remain potential headwinds, particularly with 9 July looming when the postponement of Trump’s trade tariffs ends. A satisfactory resolution of trade tariffs is key to positive market returns in the coming months.
Portfolio positioning
We live in uncertain times, so our view remains that it is important to be well diversified both geographically and by business sector. This is both to ensure our clients benefit from profitable opportunities and also to help mitigate market volatility. We continue to favour significant exposure to US equities on the basis of strong earnings and robust balance sheets. We consider that the US dollar may stabilise in the months ahead which should help returns going forward.
At the same time, we have increased exposure to other parts of the world with larger holdings in continental Europe, the UK as well as Asian and emerging markets to maximise diversification. Our focus in all cases is on companies with quality earnings and good financial strength with the potential to weather likely geo-political volatility. This means we favour multi-national businesses which have the ability to switch operations to different countries as appropriate which is important in a climate of uncertainty regarding import duties.
In terms of bonds, our preference remains for short-dated bonds for security and a more competitive interest rate with less risk; we remain concerned that longer dated bonds are vulnerable to governments around the world needing to issue more bonds than expected to cover spending requirements.
Please note that the content on this page is based on our understanding and the available information; we cannot be held responsible for any errors, and you should not act on the basis of the information in these articles, nor do they constitute investment advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise. Overseas investments are affected by currency movements and exchange rates. If you would like investment advice on your individual circumstances, please do not hesitate to get in touch via telephone at 01392 875500 or email at info@SeabrookClark.co.uk.
Found this useful?
Please feel free to share it with your contacts and friends through social media.