Market Overview Quarter 1 2025 (1 January – 31 March 2025) and Outlook

In the first quarter of 2025, the promise of a continuation of 2024’s strong gains, primarily driven by the strong US economy and markets, proved to be ill-founded. The expectation that Trump’s second term would see business-friendly policies of extending tax cuts and deregulation was undermined by his initial focus on more growth negative issues such as reversing net immigration and establishing the “DOGE” team, led by Elon Musk, charged with cutting federal expenditure to reduce the budget deficit.

This, in conjunction with announcements of AI developments by Chinese company DeepSeek shortly after Trump’s inauguration, saw January’s early gains fade as investors re-appraised the outlook for highly valued big US tech companies that have ridden the AI theme. As the quarter progressed, Trump’s initial salvo of tariffs to be implemented on neighbours Canada and Mexico weighed on investors and poorly received Nvidia earnings in February drove US markets lower. The S&P 500 and Nasdaq 100 ended the quarter down 7% and 11% respectively.

US weakness saw a rotation to other markets, with Europe and China / Hong Kong performing strongly. Chinese tech companies were buoyed by AI developments while European indices pushed higher in response to German fiscal stimulus measures directed at defence and infrastructure in reaction to Trump’s position on Ukraine and NATO. Broad European indices finished the quarter up 9%. The UK also saw gains led by banks and defence companies, while Japanese and Indian equity markets declined.

Fixed income markets remained circumspect with inflation still above target and further rate cuts remaining elusive. We continue to favour shorter duration exposure alongside money market funds still yielding above 4%.

The quarter ended with markets bracing for Trump’s “Liberation Day” tariff announcements due on 2^nd April and their implications in an environment of increasing policy uncertainty. Our benchmark neutral positioning through the quarter has seen a drag on portfolio performance from US equity weightings, with our increased equal weight index exposure providing some offset. US positioning is under close review and we anticipate some moderation in April in favour of regions where upside potential is now improving relative to expectation.

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.